Euro zone urges Cyprus to spare smaller savers from bank levy

NICOSIA/ATHENS Mon Mar 18, 2013 5:22pm EDT

1 of 11. Protesters raise their open palms showing the word 'No' during an anti-bailout rally outside the parliament in Nicosia March 18, 2013.

Credit: Reuters/Yorgos Karahalis

NICOSIA/ATHENS (Reuters) - Euro zone ministers urged Cyprus to let smaller savers escape a levy on bank deposits, before a parliamentary vote on Tuesday that will either secure the island's financial rescue or threaten default.

A weekend announcement that Cyprus would impose a levy on bank accounts as part of a 10 billion euro ($13 billion) bailout by the European Union broke with previous practice that depositors' savings were sacrosanct.

The euro and stock markets fell on concern that developments in tiny Cyprus could reignite the financial crisis in the 17-nation euro zone, while angry Cypriots staged protests outside their heavily guarded parliament.

Before Tuesday's vote, which is too close to call and would send reverberations across the currency area if lost, euro zone finance ministers held an evening teleconference and said depositors with less than 100,000 euros should be protected, officials said.

Under the deal struck in Brussels on Saturday, bank deposits under that level would have faced a levy of 6.7 percent, ripping up the protection savers thought they enjoyed on insured deposits up to that limit, while those above would be stung for 9.9 percent.

The finance ministers said they favored a higher, 15.6 percent hit for richer savers, so more modest accounts could be spared.

That would look similar to a deal the Cypriots, fearing the destruction of their banking model which lures money from rich Russians and others, baulked at in Brussels at the weekend.

It was not clear if Nicosia will accept it now but if it does, it would still raise 5.8 billion euros from the bank levy as planned, a Greek finance ministry source said.

"All Eurogroup ministers said today they wished there was no tax below 100,000 euros but you can't force a country to not do that," the Greek source told Reuters.

"Cyprus doesn't want to impose a large tax above 100,000 because the money will flow out. Two thirds of deposits are from abroad."

The decision to target bank accounts stunned Cypriots, and police sealed off parliament as about 400 people staged a noisy protest outside, aggrieved that their small island of one million people should be singled out for such treatment.

Demonstrators honked horns and waved placards reading "Hang the Banksters, Hands off People's Savings" and "Merkel go home and stay".

Residents emptied cash machines over the weekend and investors feared a precedent had been set that could reignite turmoil in the single currency area that the European Central Bank has calmed in recent months with its pledge to do whatever it takes to save the euro.

The parliamentary speaker said debate on the bank levy would be delayed until 1600 GMT (11 a.m. EST) on Tuesday to buy more time to build consensus. Banks, shut on Monday for a bank holiday, will remain closed on Tuesday and Wednesday to avert any panic.

The Greek source said the vote would go ahead on Tuesday as planned.

CHANGE COMING

The euro zone had already indicated changes would be acceptable as long as the return of around six billion euros was maintained.

"It is up to the government alone to decide if it wants to change the structure," European Central Bank policymaker Joerg Asmussen, who was pivotal in the weekend negotiations, told reporters in Berlin. "The important thing is that the financial contribution of 5.8 billion euros remains."

On the streets of Nicosia, ordinary Cypriots blamed European leaders, especially German Chancellor Angela Merkel. Protesters had inked the word "No" on the palms of their hands. "Europe is for its people and not for Germany," one placard said.

"They are treating us like guinea pigs," said Takis Georgiou, 49. "The government has lost its credibility in the eyes of the people. We'd be better off leaving the euro and returning to the pound, we don't want to end up like Greece."

On markets, the euro fell before recovering some losses. European stocks dropped two percent before recouping most of the lost ground - denoting only modest levels of concern - with banks taking the heaviest blow.

Approval in Cyprus's 56-member parliament is far from a given: no party has an absolute majority and three parties say outright they will not back the tax.

"The most important question is what would happen the following day if the bill isn't voted," Cyprus central bank governor Panicos Demetriades told parliament.

"What would certainly happen is that our two big banks would need to be consolidated. This doesn't mean that they would be completely destroyed. We will aim for this to happen in a completely orderly way."

ONE-OFF

Brussels has emphasized that the measure is a one-off for a country that accounts for just 0.2 percent of European output.

The worst fear is that savers in other, larger European countries become nervous and start withdrawing funds, although there was no immediate sign of that on Monday.

"If I were a saver, certainly in Spain or maybe Italy, I think I'd be looking askance at these measures and think this could yet happen to me," said Peter Dixon, global financial economist at Commerzbank.

U.S. Treasury Secretary Jack Lew, who has talked with his EU counterparts, was monitoring developments closely and expected a "fair" solution, Washington said.

Cyprus's banking sector dwarfs the size of its economy and has been severely hurt by exposure to its much larger neighbor Greece.

Moscow is considering extending an existing 2.5 billion euro loan to help bail the island out and said the fact it had not been consulted about the bailout could come into play.

"We will consider the issue of restructuring of the loan taking into account our (future) participation in the coordinated actions with the European Union to help Cyprus," Russian Finance Minister Anton Siluanov told Reuters.

President Vladimir Putin criticized the bank levy as setting a dangerous precedent.

"Putin said that such a decision, should it be made, would be unfair, unprofessional and dangerous," Kremlin spokesman Dmitry Peskov told reporters.

Cypriot President Nicos Anastasiades, a conservative elected just three weeks ago, said in a TV address that the tax was an alternative to a disorderly bankruptcy. It was painful, but "will eventually stabilize the economy and lead it to recovery".

But many legislators remain unconvinced.

"Essentially parliament is called to legalize a decision to rob depositors blind, against every written and unwritten law," said Yiannakis Omirou, speaker of parliament and head of EDEK, the small Socialist party. "We refuse to subscribe to this." ($1 = 0.7654 euros)

(Additional reporting by Jan Strupczewski, Karolina Tagaris, Annika Breidthardt, Jan Strupczewski, John O'Donnell, Mike Shields and Reuters Moscow Bureau.; Writing by Mike Peacock, editing by Janet McBride and Giles Elgood)

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Comments (62)
AdamSmith wrote:
The wealthy class thinks this may set a dangerous precedent. A moral hazard they tell us.

Yet when the wealthy class was bailed out by massive government payments to save the wealthy from their giant gambling losses, we heard no complaint from them about any setting of precedents.

Today in America, the Fed continues the massive transfer of cash into the hands of the criminal wealthy class, with its stealthily named QE (quantitative easing).

The Fed’s QE is the biggest boon to the wealthy ever witnessed by modern markets.

The Fed has been buying up, from the wealthy, every worthless note the wealthy had been stuck with. The Fed has been buying everything, you name it. Worthless junk that nobody else would buy, the Fed has been buying it for top dollar, taking it off the hands of the wealthy.

The wealthy can barely contain themselves at their good fortune. Who would have thought they could get rid of those worthless pieces of paper? Yet, the Fed has now paid them roughly $1.5 trillion in cold, hard cash.

The wealthy, who had expected to lose everything, are now made richer than ever.

The Fed are very happy to accomodate them using the government’s money, and get invited to the country-club parties of the elite. And even President Obama, too, yearns for the invitations to the country-club parties of the elite, so he’s all in with the QE scheme too. No problem.

Once again in life, the wealthy criminal class wins, effortlessly. And the common man is ground into the floor under their heel.

QE is a far greater crime than TARP, and far more subtle for the average citizen to grasp.

In Europe, similar bailouts by European governments likewise have gone into the pockets of the criminal wealthy class there.

The Cyprus bank levy is a refreshing breath of fresh air in the opposite direction. Now we hear loud protests from the wealthy, many of whom, like the Russian oligarchs, obtained their wealth by financial crime. They tell us this is setting a bad precedent.

Maybe it is finally setting a good precedent. The cash proceeds of giant financial crimes is not to be left unquestioned.

Mar 17, 2013 9:14pm EDT  --  Report as abuse
SavageNation wrote:
The Multinational Run Midstream Media calls Bank Robbery a “bank deposit levy”.

Iceland hired a bounty hunter to track down Banksters.

You know what China does with them

Mar 17, 2013 9:22pm EDT  --  Report as abuse
plasticmoney wrote:
“which could raise almost 6 billion euros” = Which could confiscate almost 6 billion euros.

Mar 17, 2013 9:54pm EDT  --  Report as abuse
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