The move to levy Cypriot depositors is a “fiscal measure” which does not go against the spirit of the European deposit guarantee, the European Union said yesterday as public opposition to the deposit levy continued.
A spokesman for EU commissioner Olli Rehn said that while EU law guarantees deposits of up to €100,000 per customer, per bank, this is only in the event of a bank failure.
“In this case we are not talking about such a situation, we are talking about a one-off levy which will be applied as a fiscal measure that will be applied to all bank accounts in Cyprus. It’s a fiscal measure decided by the Cypriot authorities,” he said.
Despite having sanctioned an agreement to apply a one-off tax of 6.75 per cent to Cypriot deposits under €100,000 as part of the Cypriot bailout deal, euro zone finance ministers on Monday urged Cypriot authorities to protect deposits under €100,000, though they stressed the levy should still yield the targeted reduction.
The apparent U-turn was effectively rejected by Cyprus, with the government considering an exemption on deposits of less than €20,000 ahead of a crucial vote on the bailout.
There were signs last night that Cyprus was in discussions with Russia about accessing funds as a way of side-stepping the deposit tax. Cypriot finance minister Michael Sarris flew to Moscow in the evening, suggesting that Cyprus could access alternative sources of finance than the bailout being offered by the EU and possibly the IMF. Russian depositors are expected to be disproportionately affected by the proposal to tax deposits.
Separately, EU commissioners are due to travel to the Russian capital this week for talks on EU-Russian relations.
As global markets fell yesterday euro zone officials sought to quell concerns that the decision to levy deposits could be replicated elsewhere across the euro zone, stressing that Cyprus was a “unique” case.
“We need to be very clear that the disproportionate size of the banking sector in relation to the Cypriot economy and the nature of its liabilities makes this an entirely unique situation with absolutely no parallels elsewhere in the euro area or indeed in the European Union today,” said the spokesman for Mr Rehn.
Dutch finance minister Jeroen Dijsselbloem, who chairs the group of euro zone finance ministers, said that a bank levy would not happen in other countries “because their banking industries aren’t as unbalanced as in Cyprus”.
His comments were echoed by Luxembourg Finance Minister Luc Frieden who said that euro area finance ministers would protect European deposits. "Whatever it will take today, tomorrow, in the days to come, we will make sure that deposits in Europe are safe," he said.
Uncertainty regarding the Cypriot bailout has threatened to reignite the euro zone crisis which has stabilised over the last few months, in part because of last July’s pledge by the European Central Bank to do “whatever it takes” to help the euro zone. Stock markets remained edgy as uncertainty about the Cypriot banking crisis continued. The dip in global stock markets was marked by declines in values of some Spanish and Italian banks, which fell by as much as 5 per cent. Peripheral bond spreads also widened.
The political deadlock and public disquiet about the terms of the proposed Cypriot bailout took place as Irish negotiators in Brussels reached agreement between the European Council and Parliament on a pillar of European banking union, the single supervisor mechanism.
Meanwhile, Irish officials hope to conclude negotiations on the Capital Requirements Directive IV, which includes the controversial move to curb bank bonuses, this evening in Brussels.
No major changes are expected to the agreement which was endorsed by most member states on March 5th, despite concerns from the UK about the remuneration aspects of the agreement.