Cyprus to vote on bank account tax

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.

Continued...

» Register now

The full article is available to registered AccountingWEB members only. To read the rest of this article you’ll need to login or register.

Registration is FREE and allows you to view all content, ask questions, comment and much more.

Comments

Brilliant .....

JC | | Permalink

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?

its about time this tax haven taxed the rusky oligarchs    1 thanks

david5541 | | Permalink

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?

frustratedwithhmrc's picture

The Russians are being used as scapegoats

frustratedwithhmrc | | Permalink

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.

Couple of points ...    2 thanks

JC | | Permalink

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

Number Juggler's picture

Labours future policy ?    1 thanks

Number Juggler | | Permalink

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

frustratedwithhmrc's picture

Not really...    1 thanks

frustratedwithhmrc | | Permalink

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%

Number Juggler's picture

Two fingers    1 thanks

Number Juggler | | Permalink

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

Locutus's picture

Either EU oil fields or Russian naval base

Locutus | | Permalink

Number Juggler wrote:

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

I think the only way they'll get a loan now is: -

1.  If they give the EU first dibs on whatever comes out of the oil fields until the debt is repaid;

2.  Get an even bigger loan from the Russians, which will be written off when Cyprus gives them a long lease on a naval base, which the Russians will need shortly when they lose the one they have in Syria.

Number Juggler's picture

0103953    2 thanks

Number Juggler | | Permalink

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.  

Locutus's picture

Euro and EU    1 thanks

Locutus | | Permalink

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.