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 has 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.
If approved, the deal still means that Cyprus has violated its guarantee to protect bank deposits under 100,000 euros from loss and will take account holder’s money to help pay the cost of a bank debacle caused by Cypriot institutions’ large holdings in Greek bonds that were devalued, costing the banks 4.5 billion euros ($5.82 billion) in losses.
The arrangement was demanded by Eurozone officials late on Friday night of March 15 before a three-day holiday weekend in Greece and Cyprus, but it hasn’t been reported who recommended it. Both EU officials and newly-elected Cypriot President Nicos Anastasiades have blamed each other for proposing that all savers under 100,000 euros lose 6.75 percent of their money, a scheme some analysts have characterized as a dangerous precedent that could lead to a run on the banks, which have been ordered closed until at least March 22.
Eurozone finance ministers agreed on March 18 to allow Cyprus to make changes to the tax as long as it raised the agreed amount of 5.8 billion euros ($7.5 billion.) It is estimated that the exemption of deposits under 20,000 euros will leave Nicosia with a 400-million-euro ($517.9 million) shortfall but there was no explanation on how to fill the gap..
Nicos Anastasiades, who only three weeks into taking office broke his campaign promise to veto any attempt to seize bank holders monies, said he had no choice but to accept it, but was struggling to get the support he needs to pass the tax. Anastasiades needs 29 votes for a majority in the 56-seat Parliament.
His Democratic Rally party (DISY) has 20 seats and will rely on support from its coalition partner, the Democratic Party (DIKO), which has eight MPs and then at least one of the two European Party (EVROKO) deputies or an independent lawmakers to support the tax. The Communist Party (AKEL), the Socialists (EDEK) and the Greens said they would reject the levy.
But DIKO said it would reject the idea which it called “catastrophic” to Cypriots. Anastasiades was due to speak to German Chancellor Angela Merkel, who reportedly demanded the tax, and to Russian President Vladimir Putin who is furious over the plan because nearly 30 percent of the 68 billion euros ($88.05 billion) in Cypriot banks is held by Russians. EU officials said they fear that Cypriot banks are being used as a money-laundering haven by rich Russians and mobsters.
Putin also has to approve any extension of a 2.5 billion euros loan from Russia to Cyprus, which could now be in jeopardy as well, and amid fears by Cypriot officials that the rich Russians will yank their money out of Cypriot banks. Finance Minister Michael Sarris was expected to meet Putin in Moscow ahead of the vote.
Defense Minister Fotis Fotiou told Greece’s SKAI TV that Cyprus is examining other options should Parliament choose to reject 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 lose 10 percent of their deposits within days when banks open again if the confiscation tax is approved, central bank chief Panicos Demetriades told the Cypriot parliament’s finance committee.
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