Savings levy vote delayed in Cyprus

Anger over news of levy on savings in return for €10bn bailout by IMF, EU

 

Cyprus ’s parliament today postponed a crucial debate and vote on a levy on all bank deposits that the cash-strapped country’s creditors demanded in exchange for €10 billion in rescue money.

The announcement set off an immediate scramble among top Europe an financial officials, with reports that the European Central Bank was pressuring Cypriot authorities to hold the vote without delay.

The stakes are high for the tiny island nation of one million people, because a rejection of the one-time tax by politicians could send Cyprus into bankruptcy and possibly out of the common euro currency.

Officials also fear negative global market reaction tomorrow and a run on Tuesday on Cypriot banks no matter which way the voting goes. Tomorrow is a national holiday.

The vote, which had been expected later today, was pushed back to tomorrow afternoon, parliamentary official Antonis Koutalianos said.

President Nicos Anastasiades had personally requested the postponement but no reason was given, state media reported. The president was to address the nation tonight.

The decision by Cyprus’s 16 eurozone partners and the International Monetary Fund to impose a one-time tax of 6.75 per cent on all deposits under €100,000 and 9.9 per cent over that amount was a significant shift. It marks the first time they have dipped into people’s savings to finance a bailout — a move that analysts worry may roil international markets and jeopardise Europe’s fragile economy.

The levy is expected to raise €5.8 billion to recapitalise the nation’s banks and service the country’s debt. Cypriot banks got into trouble after losing some €4.5 billion on their Greek government bond holdings after eurozone leaders decided to write down Greece ’s debt last year.

The demand for the levy has enraged Cypriot politicians, who have condemned it as unfair and disastrous, bringing into doubt its approval in the 56-seat parliament. At least 24 politicians from the Communist AKEL and the socialist Edek parties have already said they will vote it down.

“There are two choices, voting in favour which allows the country to avoid a disorderly bankruptcy, or rejection, which will have us face a disorderly bankruptcy with all that that entails,” said Averof Neophytou, deputy chief of the ruling Democratic Rally party.

Depositors flocked to ATM machines in Cyprus yesterday, trying to pull out as much money as they could.

“It’s a lose-lose situation. There will be a huge deposit withdrawal from Cypriot banks with or without a (levy),” said Cyprus Greens ’ Giorgos Perdikis.

“We should have the courage to make the right decisions that will restore the public’s confidence, which was drastically shaken.”

It is not only Cypriot depositors who will take a hit but foreigners as well, including many Russia ns who are estimated to have some €20 billion sitting in Cypriot banks.

“Now the faith in Cyprus as a place where it is convenient to keep one’s money will be undermined,” Anatoly Aksakov, president of the Association of Regional Banks of Russia, was quoted by the Interfax news agency as saying.

Mr Aksakov also suggested that some of the Russian money now deposited in Cypriot banks will move back to Russia.

To counterbalance their cash loss, depositors will receive Cypriot bank bonds.

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