Depositors in South Cyprus banks have expressed their anger and disgust at having to bear some of the burden of the EU bailout.
On Saturday, following the announcement of the tax on bank deposits, queues of people, mostly Cypriots were seen at banks, in a last minute bid to withdraw their money, before the tax is levied on Tuesday. Monday is a Bank holiday and banking institutions will be shut. In addition, banks are putting a maximum limit on electronic withdrawals over the weekend.
The Eurozone deal was forged in return for a 10 billion Euro bailout, (7 billion Euro less than was asked for), bank depositors would have to pay a one-off tax in exchange for bank shares. Investors with over 100,000 Euros on deposit would pay 9.9% in taxes; those with less than that amount would be taxed at 6.75%.
Ex-patriots and Cypriots returning to Cyprus for retirement, who have invested their pensions and savings in Cypriot banks, feel that the levy is particularly unfair on them, saying that the economic crisis is not of their making.
There are concerns that there could be a run on the banks which will contribute to the crisis. Depositors will be able to withdraw their money in time, but minus the one-off tax. Over half the depositors are Russian nationals and following the rumours of this new tax, began to withdraw their deposits last month.
This aid package is different in content than those offered to other countries, and is expected to raise around 6 billion Euros. Cyprus is the fifth country to receive a Euro bailout, after Greece, Ireland, Portugal and Spain.
Following 10 hours of late night negotiations over the package in Brussels, Cypriot Finance Minister, Michael Sarris, said, “I wish I was not the minister to do this, much more money could have been lost in a bankruptcy of the banking system or indeed of the country,” adding that he hoped a levy and bailout would mark a new start for Cyprus.
The bailout was smaller than initially expected and is mainly needed to recapitalise Cypriot banks that were hit by a sovereign debt restructuring in Greece.
The new tax breaks the unspoken rule of protecting bank depositors, however, Dutch Finance Minister Jeroen Dijsselbloem said it would otherwise have been impossible to save Cyprus’ financial sector which, compared with national economic output, is more than twice as big as the EU average.
“As it is a contribution to the financial stability of Cyprus, it seems just to ask for a contribution of all deposit holders,” Dijsselbloem, who chaired the meeting in Brussels, told reporters. “We are not penalising Cyprus…, we are dealing with the problems in Cyprus.”
The Cyprus bailout had been frequently postponed amid concerns from other EU states that its close business relations with Russia, and a banking system flooded with Russian cash, had made it a haven for money-laundering.