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Cyprus to vote on bank account tax

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18th Mar 2013
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Cyprus has postponed a referendum on an £8.6bn bailout that would also impose a levy of between 6.75% and 9.9% on funds in bank accounts. The vote will now take place on Tuesday 19 March.

As part of its agreement with the EU and IMF, the Mediterranean island nation plans to impose the one-off bank account tax to reduce the size of its rescue pacakge.

However, the proposal provoked mass account withdrawals, public anger and a fall in the euro and stock markets over fears the Eurozone crisis was returning.

Cypriot politicians are trying to revise the plan before tomorrow’s vote, with president Nicos Anastasiades meeting MPs in Nicosia, saying he wants terms amended.

David Johnson, director at Halo Financial, said he was surprised the euro had only fallen one-and-a-half cents.

“Given the talk of a potential Cypriot exit from the Eurozone and the potential cash withdrawals from other troubled countries like Spain and Greece, I am surprised the Euro hasn’t fallen further,” he said.

“If Cyprus is seen to get away with pick-pocketing savers, there will be a temptation for other countries to follow suit, although the massive volume of euros being held in reserve banks does dwarf the cash at hand for mere mortals like us.”

AccountingWEB members picked the news up in our money laundering and crime discussion group, particularly in the light of Russian deposits held in Cyprus banks.

Money laundering expert Andreas Frank noted on euractive.com that EU member states have already raised concerns that Cyprus’ banks facilitate money laundering and tax evasion, especially for their many Russian clients.

“As a precondition for granting financial assistance to Cyprus, the Eurogroup, the IMF and the commission demand an independent audit to evaluate the anti-money laundering framework in place in Cyprus,” he said.

However, Cypriot authorities have always resisted any external audits, saying they would violate the country's constitution.

Figures from Moody’s shows that at the end of 2012, Russian banks had placed $12bn in Cypriot banks and corporate deposits of $19bn, which means that Russian nationals could lose up to $2bn from the levy.

Russian president Vladmir Putin condemned the proposal, saying it was “unfair, unprofessional and dangerous”.

Russia has also provided Cyprus with a £2.5bn loan; Russian finance minister Anton Siluanov said he was prepared to consider extending and restructuring the repayments.

The vote by Cypriot parliament tomorrow on the levy will take place at 4pm, suggesting banks in Cyrpus will stay closed again tomorrow.

Replies (9)

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By User deleted
19th Mar 2013 10:30

Brilliant .....

What an inventive mix - all the ingredients - you couldn't make it up or any more diverse if you tried

Starts with taking a great little island before joining the EU and making them members of the EU

At a stroke prices jump and it's a bonanza for the Cypriots with any land - selling of their heritage for foreign housing and turning a lot of the population into 'rich' people. Spend ... spend ... spend - new cars, expensive meals out (£250-£400 per night), plenty of bling etc. all round

Greek syndrome of failure to pay tax is prevalent. Well after all the two countries are closely related and the Greeks have been insolvent for more years than they have been solvent over the last 50-100 years; so why is anyone surprised?

Merkel - election imminent and vote winning in progress, supporting Russia is not a vote catcher. Also pi** off with Russia and never forget unification pains for Germany

Russia using Cyprus for dirty money also Cyprus is probably one of the only countries in the EU which is fairly lawless

Merkel has good idea, the ramification of which have clearly not been thought out! - why not pinch savings from anyone with deposits in a bank in Cyprus. Great scattergun approach - we will hit nationals & foreigners (revenue into the country) as well as rich & poor. Absolute winner ...

EU dumping depositor protection (up to £80K?) and calling it a 'wealth tax' rather than bank failure, so dodging the rules. Would have been simpler to simply invoke the EFTA ruling on Iceland Deporit Guarantee's - http://www.eftacourt.int/images/uploads/16_11_Judgment.pdf - just call Cyprus a '.. systemic crisis of magnitude ..' and avoid payment; far simpler & a potential precedent already exists

All nationalities bank accounts affected at different levels & percentages

Cypriot Government Forcibly calling extended bank holidays to give them time to legislate and prevent capital flight

Backlash has been huge and now all the EU architects of this plan are saying it wasn't them and trying to distance themselves from the idea

Russia threatening to call in their existing EU 2.5b loan and certainly not renew when it come up

Russia (Gazprom) also offering to bail out Cyprus in exchange for off shore oil reserves

Threat of contagion over rest of PIGS countries

And all because the EU politicians have a 'vision' completely at odds with the economic realities and insist on implementing it AT ANY COST

Anyone up for writing a novel?

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By david5541
19th Mar 2013 12:33

its about time this tax haven taxed the rusky oligarchs

ok there are other tax havens: but this one has attracted alot of emigre' funds from israel russia no doubt syria etc etc.  Isnt it about time the emigre's who have funds in cyprus paid their share- its the property bubble all over again!-why should the euro bailout cyprus?

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Replying to johngroganjga:
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By frustratedwithhmrc
19th Mar 2013 13:29

The Russians are being used as scapegoats

david5541 wrote:
ok there are other tax havens: but this one has attracted alot of emigre' funds from israel russia no doubt syria etc etc

The Russians are being used as scapegoats to allow a grotty little experiment in expropriation.

If it works, then it will be a model for Spain, Portugal and Italy. If it doesn't work then they will try and say that this is a 'one-time only' thing that only applies to the 'special circumstances' of Cyprus.

My expectation is that it will cause a combined bank run and capital flight from Cyprus that will be far worse than a haircut (including to sovereign loans) or full collapse of the banks and default.

The politicians don't understand that the effective repudiation of deposit guarantees, which is what this grotty little bank theft is really about will cause a systemic shock wave across the Eurozone and especially in the PIIGS.

The cost of a full default of Cyprus would be about 30 billion Euros, almost exclusively in deposit guarantees. This is far greater than the non-bank economy of Cyprus and would have to have been another coordinated EU / IMF restructuring.

By carrying out this little bank heist, the Greek Cypriot government is effectively aiding and abetting the EU in a last ditch attempt to stop a Eurozone exit for Cyprus.

It would be far better for them to exit the Euro, reissue the Cypriot Pound or equivalent new currency and then denominate all bank accounts on the island into the new currency and let it free-float. Certainly this would cause widespread pain and all depositors would lose out, but it would allow the economy to be restored to a Mediterranean model rather than the current and unworkable German one.

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By User deleted
19th Mar 2013 14:33

Couple of points ...

To all accounts the Cypriot problem has been caused by the knock on effect of Greece. Huge amounts of capital were wiped out last year through their investment in Greek sovereign debt and with their banking system being 8x the size of their economy they have been bust for a while now - in this respect they should be sending the bill to Greece

Actually a hit of 6.7% on all savings is still well below a UK savers's hit over the last few years because of Government sponsored inflation and low interest rates - just the UK is not quite so blatent in pinching savers money as Germany demands over Cyprus. It is really all about presentation, spin & sleight of hand, which UK politicians (whatever flavour) seem to have down to a fine art

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By Number Juggler
19th Mar 2013 14:34

Labours future policy ?

I bet the likes of Ed Balls are watching this with interest.

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Replying to SpreadsheetUser:
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By frustratedwithhmrc
19th Mar 2013 14:40

Not really...

Number Juggler wrote:
I bet the likes of Ed Balls are watching this with interest.

They don't need to. They've already nicked far more than a measly 6.x% through devaluation and QE.

By my guestimate they have effectively devalued everyone's cash by about 20-25%

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By Number Juggler
19th Mar 2013 22:30

Two fingers

Cyprus has put two fingers up to Brussels - what now ?

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By Number Juggler
19th Mar 2013 23:15

0103953

You could be right, but I was thinking more about the effect on the EU. Will this give other countries the courage to tell the EU dictators where to go? I foresee the EU crumbling over the next few years as the euro collapses, followed by the EU itself. The whole concept of a federal Europe is a disaster and this move by Cyprus, which was provoked by the outrage of its people, is, I believe, the first of many huge national protests by the "ordinary people" sick of paying the price of the EU experiment.  Indeed in 2015 I would not be surprised to see a hung parliament in Britain with UKIP holding the balance of power, such is the anti-EU feeling in Britain.  

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Replying to gwilkinson:
Locutus of Borg
By Locutus
19th Mar 2013 23:36

Euro and EU

Number Juggler wrote:

I foresee the EU crumbling over the next few years as the euro collapses, followed by the EU itself. The whole concept of a federal Europe is a disaster.  

Agreed.  The euro was always a political concept that was doomed to fail.  I'd be surprised if it's still around in 5 years time.  The EU will probably persist in one form or another.  Either a looser federation or a much closer one, minus the UK and a few others.

Whilst the Cypriots may be angry at the terms of the EU bailout, they seem to forget that it is they that squandered the money they had.  The EU (in particular Germany) doesn't owe them a living.  They were free to reject the EU's offer.  Good luck with the alternative.

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