Angry Cypriots who weren’t notified that up to 9.9 percent of their bank deposits would be seized by the newly-elected Conservative government to help pay for bailing out the country’s economy were prevented from withdrawing their money on March 16 by limits set by the institutions and as ATM’s ran out of money.
It was also reported that the accounts would be frozen temporarily to prevent a run on the banks that could bring them down. Cyprus agreed to a 10 billion euros ($13 billion) rescue package from international lenders who insisted on depositors paying part of the cost for the mistakes the banks made by exposing themselves to large holdings of devalued Greek bonds.
The decision was unprecedented and led some analysts to speculate that it could undermine the banking system in weaker Eurozone countries if customers fear their savings could face a similar tax.
Cyprus said there will be a one-time levy of 6.75 percent on accounts up to 100,000 euros ($130,000) and 9.9 percent on amounts over that. Earning interest will also be taxed at 20-25 percent, further depleting the customer’s bank accounts. Cyprus’s creditors now will be able to step around the country’s sovereignty and seize money from not just the wealthy, but the bank accounts of pensioners, workers and smaller depositors to pay off the bailout tab, along with increased taxes they will have to come up with to pay for the banks mismanagement.
“What the deal reflects is that being an unsecured or even secured depositor in euro area banks is not as safe as it used to be,” Jacob Kirkegaard, an economist and European specialist at the Peterson Institute for International Economics in Washington told the New York Times. “We are in a new world.”
The decision was made late in the night in Brussels on Friday, March 15, at a meeting of Eurozone officials. It was the start of a three-day weekend in Greece and Cyprus, with services and banks closed on Clean Monday, March 18, a day of celebration marking the beginning of Lent.
There was no word on whether the timing was deliberate to prevent customers from accessing their accounts and cleaning out the banks.
As panicked customers fled to Cypriot banks on Saturday morning, March 16, they found some of them closed, ATM’s either blocking their accounts or limiting their amounts, and a limit on how much they could withdraw.
The General Manager of the Central Cooperative Bank, Erotokritos Chlorakiotis, told Cypriot national radio that, “In order to avoid the worst, the cooperatives will remain closed today.”
Some branches that had not been informed closed after they heard the news to prevent a run on the banks that could have brought them down. Chlorakiotis told customers not to attempt to take out their money because Cypriot officials are negotiating with the Eurozone, who had promised depositors their accounts were safe. The Cypriot government , Chlorakiotis said, kept him and bank officials in the dark and did not notify them of what had happened in Brussels.
“These measures taken will have painful consequences on deposits,” he said.
The news of the agreement was greeted with shock in Cyprus because new President Nikos Anastasiades, in office only a few weeks, had said he and his advisors were opposed to the so-called “haircut” on bank deposits but he quickly relented to demands by the Eurozone, which makes up part of the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) that is putting up the bailout monies that will be leveraged by the tax on bank accounts.
Anastasiades was due to convene his cabinet and meet with rival political leaders later on March 16 and address the nation on March 17. Failed Presidential candidate Giorgos Lillikas called for a referendum to be held on whether Cypriots were willing to accept the tax on deposits. Failing that, he said that snap presidential elections should be called.
He said he was in talks with economists about creating a plan for Cyprus to leave the euro and return to the Cypriot pound. The General Secretary of Cyprus’s Communist Party (AKEL), Andros Kyprianou, said his party is considering advising Anastasiades to call a referendum or to pull Cyprus out of the Eurozone.