August 20, 2019

Cyprus Set to Reject Bailout, Citing Tax on Bank Deposits

Lawmakers were scheduled to vote late Tuesday on the €10 billion, or $13 billion, bailout.

Should the measure fail in Parliament, Mr. Anastasiades and his E.U. partners would have to return to the negotiating table. Analysts have also raised the possibility of bank runs and a halt in liquidity to Cypriot banks from the European Central Bank if the measure did not pass.

The bailout plan, negotiated over the weekend, has aroused harsh criticism in many quarters for its unprecedented inclusion of ordinary bank depositors — including those with insured accounts — among those who would have to bear part of the cost.

The original terms of the bailout called for a one-time tax of 6.75 percent on deposits of less than €100,000, and a 9.9 percent tax on holdings of more than €100,000. The moves are designed to raise €5.8 billion of the total €10 billion bailout cost — a condition imposed by Cyprus’s E.U. partners.

Under a new plan put forward by Mr. Anastasiades early Tuesday, depositors with less than €20,000 in the bank would be exempt, but the taxes would remain in place for accounts above that amount.

But Mr. Anastasiades said that the changes probably would not be enough to secure a majority in the 56-member legislature to approve the bailout plan.

“I estimate that the Parliament will turn down the package,” he said on state television as he headed into a series of meetings.

A government spokesman, Christos Stylianides, echoed that opinion, telling state radio, “It looks like it won’t pass.”

The managing director of the International Monetary Fund, Christine Lagarde, said Tuesday she was in favor of modifying the agreement to put a lower burden on ordinary depositors.

“We are extremely supportive of the Cypriot intentions to introduce more progressive rates,” she told an audience in Frankfurt.

She urged leaders in Cyprus to quickly approve the plan agreed to by European leaders in Brussels last weekend.

“Now is the time for the authorities to deliver on what they have commented,” Ms. Lagarde said.

She complained that critics have not recognized how much the agreement will force Cyprus banks to restructure and become healthier.

In Brussels, Simon O’Connor, a spokesman for Olli Rehn, the E.U. commissioner for economic and monetary affairs, said Tuesday that finance ministers from countries using the euro had agreed the previous night in a teleconference that Cyprus could adjust the way the levy would operate.

But Mr. O’Connor said that E.U. authorities still were waiting to see whether the adjustments being discussed in Cyprus deliver “the same financial effect” as the agreement between Cyprus and international lenders in the early hours of Saturday.

“On the parameters of this levy, we will not comment as long as that’s a process that’s still under way,” Mr. O’Connor.

Cypriot banks were closed Monday for a bank holiday that has been extended through Wednesday.

The governor of the Cypriot central bank governor, Panicos Demetriades, warned lawmakers on Tuesday that as much as 10 percent of the €65 billion in deposits placed in Cypriot banks would flee the country as soon as banks’ doors open Thursday morning, should Parliament approve the deposit tax.

He also cautioned that the plan to exempt deposits under €20,000 from the tax posed a new problem, since the government would only be able to raise €5.5 billion, instead of the full €5.8 billion required by lenders. The gap would be considered a breach of the bailout agreement and “perhaps might not be accepted” by Cyprus’s lenders, he said.

It could also mean that Cyprus could eventually seek a higher tax on bigger deposits, a move that raised further alarms in Russia, where President Vladmir Putin has condemned the tax as unfair.

On Tuesday, Russia’s envoy to the European Union, Vladimir Chizhov, said in Brussels that the levy was “similar to forceful expropriation,” and warned that “the whole banking system can collapse,” Reuters reported.

Jack Ewing in Frankfurt and James Kanter in Brussels contributed reporting.

Article source: http://www.nytimes.com/2013/03/20/business/global/cyprus-set-to-reject-tax-on-bank-deposits.html?partner=rss&emc=rss

Speak Your Mind