Cyprus Bailout: Savings Shift Amid Russia Offer

Cyprus has ordered its banks to stay shut until Thursday as the government seeks to alter the terms of a controversial EU bailout that taxes savings.

The uncertainty comes as Russia's finance minister said his country would consider restructuring its loans to Cyprus.

Russian energy giant Gazprom has also reportedly offered financial assistance to Cyprus in exchange for access to the island's gas reserves.

Eurozone countries across the region have seen markets shudder as a result of the weekend bailout offer, which includes a one-off tax on bank deposits, with many losing more than 2% and the FTSE dropping 1.6%.

Officials in southern Cyprus, which does not include the Turkish north of the island, have now delayed the parliamentary vote until Tuesday in order to soften the impact of a levy on smaller savers.

Banks stayed closed on Monday due to a long weekend and will remain closed on Tuesday to prevent a run on the banks.

Yiannakis Omirou, the speaker of parliament, said the delay is needed to give the government time to amend the deal agreed late last week.

Authorities had planned a 6.7% tax on deposits under 100,000 euros (£85,000), triggering queues at cash machines as people in Cyprus rushed to withdraw their money on a bank holiday weekend.

But the country's government is thought to now want a 20,000-euro (£17,000) minimum to the levy, with the tax set at 6.7% on the next 80,000 euros (£68,000) and 9.9% above that figure.

In exchange for the levy which would raise 5.8bn euros (£5bn), Cyprus would receive another 4.2bn euros (£3.6bn) in aid to help recapitalise its banks.

Meanwhile, eurozone ministers planned a conference call to discuss the issue, as Germany insisted it was not behind the extraordinary weekend bailout proposal.

But Russian President Vladimir Putin slammed the proposed tax in Cyprus, where some 30,000 of his compatriots live.

"(Mr) Putin said that this decision, in case of its adoption, will be unfair, unprofessional and dangerous," Russian news agencies quoted Kremlin spokesman Dmitry Peskov as saying.

Cypriot President Nicos Anastasiades, who was elected just three weeks ago, had earlier said the island must accept a painful compromise or face bankruptcy.

International Monetary Fund (IMF) boss Christine Lagarde added: "The IMF has always said that we would support a solution that is sustainable, that is fully financed, and that appropriately allocates the burden sharing."

Depositors in the eurozone's weaker economies have been unnerved by the levy, with investors fearing it will set a precedent that could reignite market turmoil.

But the European Central Bank (ECB) moved to soothe investor nerves, saying Cyprus is a special case and other countries should not fear contagion from its bailout deal.

ECB governing council member Ewald Nowotnytold Austria's ORF radio: "For other countries, there is absolutely no reason to fear contagion."

He said Cyprus' banking system accounted for an above-average proportion of national output, and that the island nation had a particularly high share of foreign depositors.

The British Government said staff and military personnel in Cyprus will be protected from any levy on their bank deposits.

Foreign Secretary William Hague told Sky News that Britain had been "separated" from contributing towards the bailout, adding that 3,000 Britons in the country would not suffer in the proposed raid on bank savings.

The tax on deposits in Cyprus, which accounts for only 0.2% of the eurozone's economy, is expected to raise up to 6bn euros (£5bn) and affect rich Russians with deposits in Cyprus and domiciled European retirees, as well as Cypriots themselves.

The levy will apply to all deposits held in banks within Cyprus, including an estimated 2bn euros (£1.75bn) of British money, according to the ECB.

It will not affect deposits held in the UK branches of Cypriot banks, such as Bank of Cyprus, whose UK subsidiary is regulated by the Financial Services Authority.

However, Laiki Bank UK said on its website: "Your eligible deposits with Laiki Bank UK are protected up to a total of 100,000 euro by the Cyprus Deposit Protection Scheme and are not protected by the UK Financial Services Compensation Scheme.

"Any deposits you hold above the 100,000-euro limit are not covered."

Cypriot banks lost 4.5bn euros (£3.8bn) - equal to a quarter of the island's gross domestic product - when eurozone leaders decided to write off Greek debt last year.

As part of its bailout deal, corporate tax will rise from 10% to 12.5%, while state assets will be sold off to help balance the public finances. Cuts to government workers' salaries and pensions have already been approved.