Monday

30th May 2016

EU defiant over €5.8bn raid on Cypriot savings

EU officials remained defiant on controversial plans for a Cypriot bailout on Monday (18 March), the most tumultuous day for the euro so far in 2013.

Following an emergency conference call of eurozone finance ministers on Monday evening, the Eurogroup refused to backtrack on a deal which includes a one-off raid worth €5.8 billion on deposits held in Cyprus' stricken banks.

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Dutch finance minister Jeroen Dijsselbloem, who chairs the 17-member euro club, said the deal on offer is fair.

"Cyprus would have faced scenarios that would have left deposit holders significantly worse off," he noted.

However, while the Cypriot government is expected to exempt savers holding less than €20,000, it is still expected to raise the €5.8 billion demanded by creditors one way or another.

This increases the prospect of harsher levies on the wealthiest depositors.

EU sources indicated that a 15.6 percent levy on savers holding more than €100,000 was mooted to protect smaller savers.

Djisselbloem urged Cypriot politicians to make a "swift decision" and to "rapidly implement the agreed measures."

He added that the levy could be applied with more flexibility "provided that it continues yielding the targeted reduction of the financing envelope and….not impact the overall amount of financial assistance up to €10 billion."

The Cypriot parliament is set to vote on the package on Tuesday.

The vote was initially scheduled for Sunday, was postponed to give the government more time to negotiate.

With his centre-right coalition holding 29 of the 56 seats, the newly elected centre-right President Nicos Anastasiades faces an uphill battle to secure a majority after opposition parties signalled they would oppose the deal.

Meanwhile, Cypriot banks will remain closed until Thursday in a bid to prevent a bank run from anxious savers.

In a volatile day for the single currency, the euro on Monday fell to 1.29 against the US dollar, its lowest level in three months, on fears that the Cypriot deal might spark panic among savers in other crisis-hit countries, such as Italy.

Recriminations also intensified as eurozone politicians and central bankers denied responsibility for imposing the deposit levy, which, in its original form, would tax 6.75 percent of savings under €100,000 and 9.9 percent on savings over €100,000.

The bailout plan was condemned by Russia, with billions of euros of Russian money said to be Cypriot banks.

A spokesman for Russian President Vladimir Putin attacked it as "unfair, unprofessional and dangerous" ahead of a visit to Moscow on Wednesday by Cypriot finance minister Michalis Sarris.

For its part, the US government urged the EU to reach an agreement that is "responsible and fair and ensures financial stability."

And the UK government, which was not party to to the euro-using countries' talks, became the first to say it will compensate 3,000 British soldiers stationed on the Mediterranean Island.

It also announced plans to temporarily suspend pension payments to the estimated 18,000 retired Britons in Cyprus, with treasury minister Greg Clark saying that "a normal payment service will resume as soon as the situation in Cyprus becomes clear."

Finance ministers baulk at tax-avoidance rules

Member states will discuss again in June a proposed directive to outlaw practices used by large companies to avoid paying taxes. Meanwhile, the European Parliament makes progress on its probe of Panama Papers.

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