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Cyprus Rejects Bank Deposit Tax for EU Bailout, Plan B Coming


The Cypriot Parliament late on March 19, by a vote of 36-0 with 19 abstentions, overwhelmingly rejected a proposal put forth by international lenders and backed by President Nicos Anastasiades to confiscate up to 9.9 percent of bank deposits to help pay for a bailout. The rejection of the tax throws into doubt an international bailout for the troubled euro zone member needed to avert default and a banking collapse.
Anastasiades had rejected the idea before he was elected in February but backed it when Eurozone officials on March 15 gave him a “take it or leave it” ultimatum, saying the European Central Bank would withdraw liquidity from state banks unless he did, leading to their collapse.
The initial plan to seize 6.75 percent of all deposits under 100,000 euros ($130,000) and 9.9 percent for those above that amount was revised to exempt accounts under 20,000 euros ($25,900) but that created a 400 million euros ($515.4 million) shortfall as the Eurozone said Cyprus had to raise 5.8 billion euros ($7.5 billion) from deposits.
The Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) said it would put up 10 billion euros ($13 billion) to bail out Cyprus but insisted on the bank accounts confiscation because the economy needs nearly 17 billion euros ($21.8 billion) to stay afloat, an amount that couldn’t be repaid if taken only in loans.
Anastasiades got approval for a revision after he was met with fury from Cypriots that he had swiftly broken his campaign vow and amid charges the plan was legalized bank robbery of the assets of citizens. They said they were not to blame for their banks acquiring huge holdings in Greek bonds that the Greek government devalued by 74 percent to write down that country’s debt, costing the Cypriot banks 4.5 billion euros, some $5.8 billion.
In a frantic bid to get support from Parliament before a crucial March 19 vote on a savings confiscation plan demanded by international lenders in return for a 10 billion euros ($13 billion) bailout, the Cypriot government said it had revised it to exempt savers with less than 20,000 euros ($25,900) but will still tax those with holdings up to 100,000 euros ($130,000) at 6.75 percent, and at 9.9 percent above that amount.
The conservative Anastasiades’ Democratic Rally (DISY) party had only 20 seats in the 56-seat Parliament and lost the support of his coalition partner, the Democratic Party (DIKO), which has eight MP’s, enough to give him a majority, as lawmakers distanced themselves from the idea that had enraged voters who trusted them to keep to their promise to oppose confisciation of bank accounts.
DIKO called the proposal “catastrophic,” while the Communists (AKEL) along with the Socialists (EDEK) and Greeks said from the get-go they opposed it while the President worked frantically behind the scenes trying to convince them it was needed to prevent chaos.
Ahead of the vote, it was obvious the proposal was doomed when Cyprus Speaker Yiannakis Omirou urged MPs to say “No to blackmail” as angry crowds also called for the lawmakers to reject it and held up signs warning that that other financially crippled European nations like Italy and Spain could be next in line.
“There can only be one answer: no to blackmail,” Omirou, of the Socialist EDEK party told deputies who met in emergency session. “Our demand must be that this deal must be renegotiated. If we pass this tax there will be no foreign investor who will keep their money here,” he warned, the newspaper Kathimerini reported.
“There is no doubt, this is the most crucial session of our Parliament. There is unrest among the people and they deserve an answer,” EDEK MP George Varnavas told the assembly. DISY had unanimously decided not to take part in the vote because,”It will strengthen the bargaining position of the Republic of Cyprus,” party member Nicos Tornaritis told Sigma TV. DISY coalition partner Marios Karoyian of DIKO said, “This is blackmail and DIKO proposes the bill is rejected, but yes to an adjustment program … we want a European rescue, not European destruction,” he said.
George Perdikes of the Green party told Parliament: “There is now a creditocracy where countries lose their sovereignty for an illegal loan agreement that is supposedly good for them but kills growth.” European Party MP Demetris Syllouris charged that the bailout terms were designed to destroy the banking sector in Cyprus that had been flourishing for decades, and especially hit Russian investments.
“Our lenders came not to support us, they wanted to annihilate the pillar of our economy which is the service sector … they (Germany) must find another way to resolve their differences with Russia,” he said. Many Cypriots blame Germany for leading the crippling demands imposed in return for the bailout, in a bid to punish Russia, where investors have placed vast amounts of cash in the island’s banks.
“Why are the foreigners to blame, we won’t accept it, we would rather take the hit 100 percent on our wages and pensions rather than on those who supported us,” said Syllouris. Thousands of protesters lined the streets leading to the parliament building in Nicosia, many of them waving Russian flags, an Agence-France-Press reporter said.
Defense Minister Fotis Fotiou told Greece’s SKAI TV that Cyprus was examining other options in case Parliament voted down the deposit tax. “If this does not pass through Parliament then it is part of responsible politics for us to look at Plan B, which we are examining but can’t discuss publicly,” he said, keeping it a secret from Cypriots.
Cypriot banks could have lost 10 percent of their deposits, or 6.8 billion euros ($8.75 billion) within days when banks opened again if the confiscation tax was approved, central bank chief Panicos Demetriades told the Parliament’s finance committee. The deal would have meant that Cyprus would violated its guarantee to protect bank deposits under 100,000 euros from loss and take account holder’s money to help pay the cost of a bank debacle.
The government ordered the banks closed on March 19 and 20, and may extend it to prevent a run on the banks, fearing customers will withdraw as much cash as they can when they reopen. Greece also closed Cypriot branches there but allowed their ATM’s to stay open as a Greek bank prepares to take them over.
The idea was deemed a dangerous precedent by international bank officials and Cypriot’s Nobel Prize-winning economist Christopher Pissarides, who said the government would, in effect, be stealing people’s bank accounts. “I am totally against it. First, deposits under 100,000 are insured. What happened to that insurance? How could the euro group agree to taxing deposits as small as one euro? What is the meaning of deposit insurance in the euro zone?,” he told Bloomberg news agency.
He added that, “Deposits include the savings of honest people who have paid their taxes and saved for retirement, to buy a home, educate their children or whatever. Why pay a hefty additional tax? And how would these people feel when they woke up on Saturday morning to be told, “Sorry guys, we are not letting you withdraw your money anymore, until we sort out how to take a big chunk away from you.”

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