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.
what do you think?
Er, April fools?
Catch 22. No loan to banks risks bankruptcy, imposing tax on savers causes a run on banks, same result. All of which will cause markets to plunge. Brussels had better get its one brain cell to think again.
Government + banks = what do people expect?
Bankrupsy every time sorry. This is daylight theft and mark my words, ours will have something very similar under another name.
no they won't.
t. bulgin Oh yes they can. Remember they also said that Labour could not get their hands on everyone's Pensions. Anything is possible.
ABritMum in many instances I would agree with bankruptcy however banks have woven a web of interlinked transactions and a danger is always that of systemic collapse within a given sector - rem the US problem of 2012 and the knock on effect here in the UK and elsewhere
Can't you spell properly?
Its always the same no matter what country when the brown stuff hits the fan its the taxpayers that foot the bill for the incompetence of the ones that are supposed to be running things. Its most be hard at the top playing with other people's hard earned money with no accountability
The alternative would be to let the Cypriot banks fail and all savings would then be lost for ever. A bail out is required and like every form of lending, it does come with strings attached. Would you lend money to a person in debt without some form of security, I don't think so. For what it is worth, I think it is wrong to raid people's savings, but do not have an alternative. Europe's economies are in a mess as a result of overspending by governments with money they didn't have and by banks lending money to companies and people who they knew couldn't afford the repaymetns, this combined with some dodgy baking practices resulted in the mess.
There's often more than 2 possible ways of resolving problems. We don't live in a world of autobots and decepticons.
When Osborne was questioned about events in Cyprus yesterday his reaction was this is why we must have a strong economy.As for a country that is not fully integrated in the EU and has been promised a referendum.I found him resigned to the 10% skim off the top attitude, any chancellor who cannot bolster the electorates morale against this is a man with no plan except follow the herd of EU Mafia. If they succeed in Cyprus it will spread acoss Europe we will be like socialist Russia everyone subservant to the state,there will be no such thing as free elections.
Its obvious the Cypriot Government are not keen to vote this through. They know that if they do the Cypriot people won't stand for it and they are likely to end up shot. The Cypriot people should show the bankers who the real boss is by going to the banks and and demanding the remainder of their money in cash. The banks cannot operate without depositors cash and its about time they, the EU and the IMF were reminded of that.
Time to bring down the curtain on the farce that has been the EU. Untold sufferings to millions prove that what Europe needs is strong national democracies, not the EU. UK needs Farage in Downing Street
Why do we need a garage in downing st?
Think it is about time the EU countries went back to their original currencies and control over their own finances and told their politicians to leave the people alone, why should the people who work and save have to pay for the failure of politicians to manage the economies properly, cannot believe this is even legal.............thank goodness we are out of the euro
Pauline we might be out of it but not ring fenced against it. It is also strange that everyone has so much faith in the Euro that (so it seems) some countries have printed new money just in case
Interesting that this idea has come up when one of the EU's smallest countries is affected, but not when the larger states such as Spain, Italy and Greece were concerned. These have a larger number of MEPs so that is probably why they feel they can bully Cyrprus. Frankly, each and every Eurozone state should go back to its own currency so that it can devalue. The Germans won't like this as it will make their goods uncompetitive in export markets. It is not an easy solution as it will mean a couple of years of high inflation in the countries affected, but it will buy time.
Time is right for a very much overdue re-think of the EU the diversity of economies and cultures makes it an almost impossible concept trouble is there are too many vested interests
Maybe the Russians dont want the rest o Europe looking too closely into the Russian financial dealings In Cyprus
Strange how the Euro is supposed to be in crisis yet remains strong against the Pound
That's because the BOE keep printing money and reducing the value of the pound.
Would like to see a class action suit by the people of the EU countries suffering in this way because of overspending inefficient governments and banks - I think if this was threatened against these politicians and bank officials, you would soon see them sort out these financial problems, all they do is waste money and expect ordinary citizens to pick up the bill, and they just seem to get away with it every time...........
nice idea, s....s would just change the law. we are stuffed.
This deal has ma Merkels fingerprints all over it, she's up for election this year and her electorate think they are propping up the EU.but the truth is Germany has domineered the EU since day 1.She is pandering to her own lot at the expense of the rest.Why did this deal come suddenly out of the blue? Why wasn't this discussed among member states by member delegates and why their deafening silence, not one word of protest. Germany may have lost a couple world wars but thanks Merkel she has exceeded Adolfs dream and won an economic war that will have the same consequences. At least were still alive
Way past the time for countries to revert to their own currencies and let them find their own level in the world market..By all means have free trade and travel but no one country should be able to dictate any other country's financial policies as is happening at the moment.Germany seems to think it alone shoulders the burden of Europe's ills and can therefore dictate policy..Not so..this is supposed to be a Union not a dictatorship. The whole organisation needs at the very least serious restructuring starting with the fat cats at the top.
cash will soon be worthless
ECB governing council member Ewald Nowotnytold Austria's ORF radio: "For other countries, there is absolutely no reason to fear contagion." Better get your money out of the banks quickly,if they get away with it in Cyprus then everywhere will be vulnerable
Why should our servicemen and government workers in Cyprus be spared from the proposed tax by the Cyprus government? It is simply another backdoor way for UK to bail out the Euro.Will we ever get the money back that we paid to help Ireland when they were last in trouble? My thoughts are that our government is fixated on doling out largesse and are not fit to be handling our money. It is time someone got up and said enough is enough.