People with bank accounts in Cyprus were shocked Saturday to learn that as part of an agreement reached with international creditors, the government has imposed a tax on all deposits to help bail out the nation and its banks.
While the island nation may be small, it’s an international favorite for offshore banking– particularly for wealthy Russians. The tax will range from 6.75% to 9.9%, depending on how much is in the account.
“This is a clear-cut robbery,” Andreas Moyseos, a former electrician who is now a pensioner in Nicosia, told the New York Times. Iliana Andreadakis, a book critic, further 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.”
And indeed, following the massive run on banks in Cyprus, many are concerned that a minor panic could spread to the rest of the Eurozone. After all, it has just set a precedent for taxing private bank accounts at exorbitant rates without warning.
ut first, here’s a little more background on the plan via the Associated Press:
As one of 17 nations that use the euro currency, Cyprus can to raise or lower taxes whenever it wants. Early Saturday, it secured a (EURO)10 billion ($13 billion) bailout from its European partners and the International Monetary Fund to save the banking sector and avoid bankruptcy. In return, the island nation has imposed the new tax, among other moves.
Banks have already acted to seal off the amount of the levy – a 6.75 percent tax on deposits under 100,000 euro and 9.9 percent on those above – so depositors can’t access it. Bank customers still can draw on the rest of their funds via ATM machines this weekend, although banks that usually open on Saturdays had limited hours and many said they were out of cash by the end of the day. No international transfers will be able to go through until Tuesday, since Monday is a holiday. Cyprus’ parliament is expected to meet Sunday to pass the required legislation. The deal also needs the approval of several eurozone parliaments; it’s unclear how fast they can act and what will happen to bank deposits in the meantime. [Emphasis added]
The really shocking aspect of the policy is that it targets “ordinary savers,” in the words of the New York Times.