Cyprus postpones emergency vote on bank levy

Cyprus has postponed a vote on a planned one-off tax on depositors’ savings accounts central to a eurozone bailout of the country’s troubled banking system.

The government held an emergency session on Monday to discuss efforts to soften the blow to smaller savers from the measure and said discussions would resume on Tuesday. 

Under the bailout’s terms, people with less than 100,000 euros in their accounts would have to pay a one-time tax of 6.75 percent. Those with savings higher than that amount would pay 9.9 percent.

The levy has infuriated Cypriots, triggering a run on cashpoints as nervous savers attempt to withdraw money before the tax is implemented.

Al Jazeera’s Peter Sharp, reporting from Nicosia, said “There is a real sense of anger, frustration here. Also, people are scared. They do not know if this is just the beginning.

“Most people woke up on Saturday morning to find that this money had already been pledged to come out of their accounts. They feel that Cyprus is a scapegoat for the rest of Europe.”

Russian President Vladimir Putin became the latest person to criticise the measure on Monday, saying it set a dangerous precedent.

“While assessing the proposed additional levy on bank accounts in Cyprus, Putin said that such a decision, should it be made, would be unfair, unprofessional and dangerous,” Kremlin spokesman Dmitry Peskov told journalists.

Russian citizens account for the majority of the billions of euros held in Cypriot banks by foreign depositors, and Russia’s banks are heavily exposed to the island as a favoured offshore centre for big business.

‘Tragic moment’

Breaking with previous EU practise that depositors’ savings are untouchable, Cyprus and international lenders agreed at the weekend that savers in the island’s banking system would take the penalty in return for the offer of $13bn in aid.

“President [Nicos Anastasiades] … does not like the bailout, he said it is a tragic moment for Cyprus but also that they must accept it or the result will be catastrophic,” Sharp said.

“He spelled out what would happen without the bailout. It would mean bankruptcy for Cyprus, the collapse of the banking system and you could also see Cyprus going completely outside of the eurozone.”

The levy has unnerved depositors in the eurozone’s weaker economies, with investors fearing a precedent that could reignite market turmoil.

Shares fell sharply early on Monday in Asian and European trading.

Approval of the deposit cut in the country’s fractious 56-member parliament is far from certain.

No party has an absolute majority and three parties have already said they will not back the tax.

A vote initially planned for Sunday was rescheduled to allow more time to build a consensus.

Still unconvinced

Faced with a growing public backlash, Cypriot finance ministry officials began discussions with lenders on Sunday to lessen the blow for smaller savers.

A source close to the consultations told the Reuters news agency that authorities were hoping to cut the tax band for smaller savers with less than 100,000 euros to three percent from 6.7 percent.

The rate for deposits above that would then be increased to 12.5 percent from 9.9 percent.

In Brussels, a spokesman for Olli Rehn, the European commissioner in charge of economic affairs, said changes to the amounts paid by different depositors could be acceptable given that the financial impact would be the same.

Anastasiades, a conservative elected just three weeks ago, said the tax on deposits was an alternative to a disorderly bankruptcy.

In a televised address, he said it was painful but “will eventually stabilise the economy and lead it to recovery”.

Savers who lost money would be compensated by shares in commercial banks, with equity returns guaranteed by future revenues expected from natural gas discoveries, Anastasiades said.

But many legislators remain unconvinced.

“Essentially parliament is called to legalise a decision to rob depositors blind, against every written and unwritten law,” said Yiannakis Omirou, speaker of parliament and head of EDEK, the small Socialist party.”We refuse to subscribe to this.”

Our correspondent said “Cyprus got to this point because it thought it was going to get some very easy returns on easy money from Greece.

“A huge amount of money was invested in Greece in late 2007, 2008. And when Greece went down, it took the Cyprus banking system with it.”