Cyprus agrees deal with troika to levy 20% tax on some bank deposits
Government to seize fifth of the value of deposits of over €100,000 at Bank of Cyprus
Bank employees protest outside the Finance Ministry in Nicosia today. Photograph: Yannis Behrakis/Reuters
Financial sector workers protest outside the Cypriot parliament in Nicosia. Photograph: Yannis Behrakis/Reuters
Cyprus has conceded to a one-off levy on deposits over €100,000 in a dramatic U-turn as it raced to satisfy Eu ropean partners and seal an 11th-hour bailout deal to avert financial collapse.
The island's finance minister, Michael Sarris, reported "significant progress" in talks with international lenders, with the clock running down to and end-Monday deadline for Cyprus to clinch a bailout deal with the EU or lose emergency funding for its stricken banks and risk tumbling out of the euro zone.
His counterparts in Europe's 17-mmeber urrency union scheduled talks in Brussels for Sunday evening to see if the numbers add up, and the EU's Economic Affairs Commissioner Olli Rehn said progress was being made towards a solution.
As Cypriot party leaders met, a senior Cypriot official said Nicosia had agreed with EU-IMF lenders on a 20 per cent levy over and above €100,000 at the country’s largest lender Bank of Cyprus, and four per cent on deposits over the same level at others.
Troika officials could not immediately be reached for comment.
Cypriot president Nicos Anastasiades tweeted: "We are undertaking great efforts. I hope we have a solution soon."
The conservative leader, barely a month in the job and wrestling with Cyprus's worst crisis since a 1974 invasion by Turkish forces split the island in two, is due to lead a delegation to Brussels tomorrow, to meet heads of the EU, the European Central Bank and International Monetary Fund, in a sign a deal might be near.
"Hopefully by tomorrow in Brussels we will have the agreement of our partners," Averof Neophytou, deputy leader of the ruling Democratic Rally party, told reporters this evening.
Government officials held talks through the day at the finance ministry with Cyprus's 'troika' of lenders - the EU, ECB and IMF. Angry demonstrators outside chanted "resign, resign!"
Its outsized banking sector crippled by exposure to crisis-hit Greece, Cyprus needs to raise €5.8 billion in exchange for a €10 billion EU lifeline to keep the country's economy afloat.
But in a stunning vote on Tuesday, Cyprus's 56-seat parliament rejected a levy on depositors, big and small, as "bank robbery", and Sarris spent three fruitless days in Moscow trying to win help from Russia, whose citizens have billions of euros at stake in Cypriot banks.
Rebuffed by the Kremlin, Mr Sarris said today talks with the troika were centred on a possibly levy of some 25 per cent on savings over and above €100,000 at failing Bank of Cyprus.
In a sign of how fluid the situation remains, however, a senior ruling partypolitician said other options were on the table, including a "voluntary haircut" in exchange for equity that would not require parliamentary approval.
Mr Rehn said the EU recognised the progress made by the Cypriot government, and warned of tough times ahead. "Unfortunately, the events of recent days have led to a situation where there are no longer any optimal solutions available," he said in a statement. "Today, there are only hard choices left."
It was far from certain that a majority of lawmakers would back a revised levy, or whether the government might bypass the assembly.
Ordinary Cypriots were outraged by the original proposal, and have been besieging cash machines ever since bank doors were closed last weekend on the orders of the government to avert a massive flight of capital.
Racing to placate its European partners, Cypriot MPs voted in late-night session last night to nationalise state pensions and split failing lenders into good and bad banks - a measure likely to be applied to Cyprus Popular Bank , also known as Laiki. They also gave the government powers to impose capital controls, anticipating a run on banks when they reopen on Tuesday.
A plan to nationalise semi-state pension funds has met with resistance, particularly from Germany which made clear that tapping pensions could be even more painful for ordinary Cypriots than a deposit levy.
The bank restructuring has also angered Cypriots.Today, around 1,500 bank workers marched on the presidency, holding banners that read, "No to the bankruptcy of Cyprus" and "Hands of workers' welfare funds".
The pace of the unfolding drama has stunned Cypriots, who in February elected Mr Anastasiades on a mandate to secure a bailout and save banks whose capital was wiped out by investments in Greece, the epicentre of the euro zone debt crisis. Then news of the levy on bank deposits broke, an unprecedented step in Europe's handling of a debt crisis that has spread from Greece, to Ireland, Portugal, Spain and Italy.
Cypriots leaders had initially tried to spread the pain between big holdings and smaller depositors, fearing the damage it would inflict on the country as an offshore financial haven for wealthy foreigners, many of them Russians and Britons.
The tottering banks hold €68 billion euros in deposits, including €38 billion in accounts of more than €100,000 - enormous sums for an island of 1.1 million people which could never sustain such a big financial system on its own.
Under the latest proposal, Russians are unlikely to be hit hardest by the mootedtax, given that just five per cent of deposits at Bank of Cyprus come from Russia, according to the bank's latest results statement.