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Cyprus parliament delays vote on deposit levy to Monday

[ Time in Cyprus now - Monday, 18 March 2013 at 6:19 AM EET ]

Michele Kambas, REUTERS - Sunday, March 17, 2013 2:38:36 EDT PM


A man withdraws money from an automatic teller machine at a branch of Bank of Cyprus, in Athens March 16, 2013.The euro zone struck a deal on Saturday to hand Cyprus a bailout worth 10 billion euros, but demanded depositors in its banks forfeit some money to stave off bankruptcy despite the risks of a wider run on savings. In a radical departure from previous aid packages - and one that gave rise to incredulity and anger across the country - euro zone finance ministers forced Cyprus' savers to pay up to 10 percent of their deposits to raise almost 6 billion euros. REUTERS/Yannis Behrakis

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NICOSIA - Cyprus’s parliament has postponed until Monday an emergency session to vote on a levy on bank deposits after signs that lawmakers might block the surprise move agreed in Brussels to help fund a bailout and avert national bankruptcy.

In a radical departure from previous aid packages, euro zone finance ministers want Cyprus savers to forfeit up to 9.9 percent of their deposits in return for a 10 billion euro ($13 billion) bailout to the island, which has been financially crippled by its exposure to neighbouring Greece.

The decision, announced on Saturday morning, stunned Cypriots and caused a run on cashpoints, most of which were depleted within hours. Electronic transfers were stopped.

The move to take a percentage of deposits, which could raise almost 6 billion euros, must be ratified by parliament, where no party has a majority. If it fails to do so, President Nicos Anastasiades has warned, Cyprus’s two largest banks will collapse.

One bank, the Cyprus Popular Bank, could have its emergency liquidity assistance (ELA) funding from the European Central Bank cut by March 21.

A default in Cyprus would threaten to unravel investor confidence in the euro zone that has been fostered by the European Central Bank’s promise last year to do whatever it takes to shore up the currency bloc.

A meeting of parliament scheduled for Sunday was postponed for a day to give more time for consultations and broker a deal, political sources said. The levy was scheduled to come into force on Tuesday, after a bank holiday on Monday.

BREAKS A TABOO

Making bank depositors bear some of the costs of a bailout had been taboo in Europe, but euro zone officials said it was the only way to salvage Cyprus’s financial sector, which is around eight times the size of the economy.

European officials said it would not set a precedent.

In Spain, one of four other states getting euro zone help and seen as a possible candidate for a sovereign rescue, officials were quick to say Cyprus was a unique case. A Bank of Spain spokesman said there had been no sign of deposit flight.

The crisis is unprecedented in the history of the Mediterranean island, which suffered a war and ethnic split in 1974 in which a quarter of its population was internally displaced.

Anastasiades, elected only three weeks ago, said he had no choice but to accept the euro zone’s aid terms.

“We would either choose the catastrophic scenario of disorderly bankruptcy or the scenario of a painful but controlled management of the crisis,” Anastasiades said in a statement.

With a gross domestic product of barely 0.2 percent of the bloc’s overall output, Cyprus applied for financial aid last June, but negotiations were stalled by the complexity of the deal and reluctance of the island’s previous president to sign.

International Monetary Fund Managing Director Christine Lagarde, who attended the meeting, said she backed the deal and would ask the IMF board in Washington to contribute to the bailout.

RUSSIANS, EUROPEANS

The proposed levies on deposits are 9.9 percent for those exceeding 100,000 euros and 6.7 percent on anything below that.

They would be compensated with shares in the banks. A political source told Reuters that, as a sweetener, Anastasiades would offer depositors equity returns, guaranteed by future natural gas revenues.

“Half of the value of the haircut will be guaranteed by natural gas proceeds,” the source told Reuters.

Cyprus is expecting the results of an offshore appraisal drilling this year to confirm the island is sitting on vast amounts of natural gas worth billions.

Those affected will include rich Russians with deposits in Cyprus and Europeans who have retired to the island, as well as Cypriots themselves.

“I’m furious,” said Chris Drake, a former Middle East correspondent for the BBC who lives in Cyprus. “There were plenty of opportunities to take our money out; we didn’t because we were promised it was a red line which would not be crossed.”

“I’ve lost several thousand,” he told Reuters.

British finance minister George Osborne told the BBC on Sunday that Britain would compensate its about 3,500 military personnel based in Cyprus.

Anastasiades’s right-wing Democratic Rally party, with 20 seats in the 56-member parliament, needs the support of other factions for the vote to pass. It was unclear whether even his coalition partners, the Democratic Party, would fully support the levy.

Cyprus’s Communist party AKEL, accused of stalling on a bailout during its tenure in power until the end of February, was likely to vote against the measure. The socialist Edek party called EU demands “absurd”.

“This is unacceptably unfair and we are against it,” said Adonis Yiangou of the Greens Party, the smallest in parliament but a potential swing vote.

Many Cypriots, having contributed to bailouts for Ireland, Portugal and Greece - Greece’s second bailout contributed to a debt restructuring that blew the 4.5 billion euro hole in Cyprus’s banking sector - are aghast at Europe’s treatment.

Cyprus received a “stab in the back” by its EU partners, the daily Phileleftheros said.

But it and another newspapers highlighted the danger of plunging the banking system into further turmoil if lawmakers sat on the fence.

“Even if the final agreement is wrong, if this is not approved by parliament the damage will be even greater,” Politis economics editor Demetris Georgiades said in an editorial.

http://www.lfpress.com/2013/03/17/cyprus-parliament-delays-vote-on-deposit-levy-to-monday

======

Facing Bailout Tax, Cypriots Try to Get Cash Out of Banks

By: Liz Alderman -Published: Saturday, 16 Mar 2013 | 12:49 AM ET


Hasan Mroue | AFP | Getty Images

A man and a woman withdraw money from a cash-point
machine in the Cypriot capital Nicosia on March 16, 2013.

In a move that could set off new fears of contagion across the euro zone, anxious depositors drained cash from automated teller machines in Cyprus .. http://www.cnbc.com/id/100559091 .. on Saturday, hours after European officials in Brussels required that part of a new 10 billion euro bailout be paid for directly from the bank accounts of ordinary savers.

The move — a first in the three-year-old European financial crisis .. http://www.cnbc.com/id/100560343 — raised questions about whether bank runs could be set off elsewhere .. http://www.cnbc.com/id/100390190 .. in the euro zone. Jeroen Dijsselbloem, the president of the group of euro area ministers, declined early Saturday to rule out taxes on depositors in countries beyond Cyprus, although he said such a measure was not currently being considered.

Although banks placed withdrawal limits of 400 euros, or about $520, on A.T.M.’s, most had run out of cash by early evening. People around the country reacted with disbelief and anger.

“This is a clear-cut robbery,” said Andreas Moyseos, a former electrician who is now a pensioner in Nicosia, the capital. Iliana Andreadakis, a book critic, added: “This issue doesn’t only affect the people’s deposits, but also the prospect of the Cyprus economy. The E.U. has diminished its credibility.”

In Nicosia, a crowd of around 150 demonstrators gathered in front of the presidential palace late in the afternoon after calls went out on social media to protest the abrupt decision, which came with almost no warning at the beginning of a three-day religious holiday on the island.

Under an emergency deal reached early Saturday in Brussels, a one-time tax of 9.9 percent is to be levied on Cypriot bank deposits of more than 100,000 euros effective Tuesday, hitting wealthy depositors — mostly Russians who have put vast sums into Cyprus’s banks in recent years.

But even deposits under that amount are to be taxed at 6.75 percent, meaning that Cyprus’s creditors will be confiscating money directly from pensioners, workers and regular depositors to pay off the bailout tab.

Cyprus’s newly elected president, Nicos Anastasiades, said taxing depositors would allow Cyprus to avoid implementing harsher austerity measures, including pension cuts and tax increases, of the type that have wreaked havoc in neighboring Greece.

That thinking appealed to some Cypriots, including Stala Georgoudi, 56. “A one-time thing would be
better than worse measures,” she said. “Procrastinating and beating around the bush would be worse.”

But Sharon Bowles, a British member of the European Parliament who is the head of the body’s influential Economic and Monetary Affairs Committee, said the accord amounted to a “grabbing of ordinary depositors’ money,” billed as a tax.

“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,” said Jacob Kirkegaard, an economist and European specialist at the Peterson Institute for International Economics in Washington. “We are in a new world.”

Cyprus had been a blip on the radar screen of Europe’s long-running debt crisis — until now.

Hobbled by a devastating banking crisis linked to a slump in Greece’s economy, where Cypriot banks made piles of loans that are now virtually worthless, Cyprus on Saturday became the fifth country in the euro union to receive a financial lifeline since Europe’s debt crisis broke out.

As the euro zone’s smallest economy, Cyprus had hardly been considered the risk for the euro union that Greece, Ireland, Portugal or Spain were.

But the surprise policy by the International Monetary Fund, the European Central Bank and the European Commission is the first to take money directly from ordinary savers. In the bailout of Greece, holders of Greek bonds were forced to take losses, but depositors’ funds were not touched.

Mr. Anastasiades, who was elected just a few weeks ago, called the decision “painful” but said it would lead to “the historic and definitive rescue of our economy.” He said the consequences of rejecting the deal would be the collapse of at least one of Cyprus’s major banks, amid widespread weakness in the country’s banking system.

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* Parliament Rejects European Budget Agreement ..
[OOPS! .. lol, if that was the Cypriot parliament, looks like a jump the pistol .. "Page Not Found" ]
http://www.cnbc.com/id/Parliament%20Rejects%20European%20Budget%20Agreement

* Barroso Urges Europe to Keep Cutting Debt
http://www.nytimes.com/2013/03/12/business/global/barroso-urges-eu-to-keep-cutting-debt.html?pagewanted=all&_r=0

* Cyprus Agrees to Euro Zone Bailout Package
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[ c'mon you guys .. the parliament hasn't agreed, yet ]

Cypriot banks are loaded up on bad loans made to Greek companies and individuals, which have turned sour at an alarming rate as Greece deals with the fourth year of a devastating economic and financial crisis.

"I'm not surprised that people are trying to get their money out in Cyprus; that is entirely to be expected," Mr. Kirkegaard said. "They wake up Saturday morning and are told on the radio their bank deposits are at risk."

The deposit tax, which is expected to raise 5.8 billion euros, or $7.6 billion, appeared aimed at gleaning large amounts of cash from the accounts of wealthy Russians, who have poured deposits into Cypriot banks in the last several years.

Chancellor Angela Merkel of Germany, who faces a pivotal election in September, has been particularly concerned that most of the bailout money could wind up in the hands of Russian gangsters and oligarchs, a fear backed by a recent report by Germany's intelligence agency.

Officials in Cyprus have said there is no proof the Russian cash is of questionable origin. They insist they cracked down on money laundering before joining the European Union.

Because Russian depositors would have to share the burden, it would ultimately relieve Cyprus from its debt load by allowing a one-time payment upfront rather than deeper cuts to salaries and pensions or additional privatizations in the future.

Mr. Kirkegaard said he was surprised that Cyprus's creditors had decided to go after smaller depositors, but that part of the rationale might have been avoiding putting too much pressure on businesses, which hold a large share of the high-value accounts.

The Cyprus Parliament must vote on the measure, and it was planning an emergency session on Sunday. Given the stunned reaction, it was not certain to pass. Nicholas Papadopoulos, the head of Parliament's financial affairs committee, said the decision was "much worse than what we expected and contrary to what the government was assuring us, right up until last night," Reuters reported.

http://www.cnbc.com/id/100560290