Friday

24th May 2019

Cyprus blamed for decision to tax small savers

  • Cypriot President Anastasiades (l) insisted that big savers should not to be hit too hard, the commission says (Photo: Council of European Union)

The European Commission on Wednesday (21 March) said Cyprus itself was responsible for the most unpopular detail of its bailout.

Following the Cypriot parliament's rejection of the €10 billion bailout, the commission said it was Nicosia that wanted to apply a levy on all savers - including the least well off - when the terms of the deal were being discussed.

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 18 year's of archives. 30 days free trial.

... or join as a group

It is this element that sparked Cypriots to queue to take money out of their accounts and led to fears of a bank run that could spread to other vulnerable periphery euro countries.

"The commission made it clear ... that an alternative solution respecting the financing parameters would be acceptable, preferably without a levy on deposits below €100.000. The Cypriot authorities did not accept such an alternative scenario."

It said it is now up to Cyprus to find "alternative solutions” to raise the €5.8 billion that its creditors want from the island itself.

In Berlin, the German government was busy outing Cyprus' role too.

"The way the levy is structured was not something the Eurogroup or the German government imposed on Cyprus, it was a decision by the Cypriot government. They did not want to have depositors above €100,000 pay too much," government spokesperson Steffen Seibert said Wednesday.

It follows several comments by finance minister Wolfgang Schaeuble that Cyprus was keen to maintain its business model as a low tax, financial centre.

During the bailout discussions on Friday, Cypriot leader Nicos Anastasiades baulked at taxing larger deposit holders, including many wealthy Russians, at anything higher than 10 percent.

The end solution was to tax all savers: a compulsory levy of 6.75 percent on deposits under €100,000 and a 9.9 percent tariff on savings over €100,000.

A last minute tweak to exempt those with less than €20,000 savings was not enough to avoid the entire bailout package being voted down.

The events mark an extraordinary few days of blame and counterblame as individual EU politicians refuse to accept accountability for the original package.

Meanwhile the decision-making trail, despite the commission’s statement putting the blame at Nicosia's door, remains muddy.

According to one EU source, the commission sided with Cyprus when Nicosia refused to accept an original German proposal called a "bail-in," in which only the two largest banks - Laiki and Bank of Cyprus - would have been "considerably restructured," meaning losses for depositors and bondholders alike.

But under that proposal, depositors under €100,000 would not have been hit.

“We don’t really understand why the commission opposed this,” the source said.

The same source also indicated the commission was in agreement with Cyprus when it suggested taxing all savers with a one-off levy in all Cypriot banks.

The commission, for its part, said that not all “elements” of the bailout correspond to its “proposals and preferences.”

But it added that it was not EU economics commissioner Olli Rehn’s “responsibility to start putting down reservations when everyone else is in agreement.”

Meanwhile, German foreign minister Guido Westerwelle told press in Berlin on Wednesday that there is no point in blaming "one person, one institution or one country" for the levy.

He added: "But I already said at the weekend that I am sceptical about the involvement of small savers because it can hit the wrong people."

For now, the status of the bailout is in limbo.

It is unclear when Cypriot banks will re-open and how long the European Central Bank will keep up an emergency-lending scheme for Laiki and the Bank of Cyprus in the absence of a bailout deal. The absolute deadline for a revised bailout is 3 June, when €1.42 billion in government bonds falls due.

Cyprus struggling on bailout Plan B

With no firm offer from Russia, Cypriot officials are scrambling to find alternative money to secure a €10 billion EU bailout.

Eurogroup boss: Cyprus levy is 'inevitable'

Eurogroup boss Jeroen Dijsselbloem told MEPs on Thursday that Cypriot savers will have to lose money no matter what the final shape of the bailout deal.

News in Brief

  1. Some EU citizens turned away at UK polling stations
  2. Switzerland unlikely to sign draft EU deal
  3. UK sacked defence secretary backs Johnson for leader
  4. Dutch voter turnout so far slightly down on 2014
  5. Report: Hungary's Fidesz 'bought' Belgian official
  6. Poll: Denmark set to double number of liberal MEPs
  7. European brands 'breaking' chemical safety rules
  8. Report: Merkel was lobbied to accept EU top job

Feature

Romania enlists priests to promote euro switchover plan

Romania is due to join the single currency in 2024 - despite currently only meeting one of the four criteria. Now the government in Bucharest is enlisting an unlikely ally to promote the euro to the public: the clergy.

Trump and Kurz: not best friends, after all

The visit of Austrian chancellor Sebastian Kurz to the White House on Wednesday showed that the current rift in transatlantic relations is deepening by the day.

Stakeholders' Highlights

  1. Vote for the EU Sutainable Energy AwardsCast your vote for your favourite EUSEW Award finalist. You choose the winner of 2019 Citizen’s Award.
  2. Nordic Council of MinistersEducation gets refugees into work
  3. Counter BalanceSign the petition to help reform the EU’s Bank
  4. UNICEFChild rights organisations encourage candidates for EU elections to become Child Rights Champions
  5. UNESDAUNESDA Outlines 2019-2024 Aspirations: Sustainability, Responsibility, Competitiveness
  6. Counter BalanceRecord citizens’ input to EU bank’s consultation calls on EIB to abandon fossil fuels
  7. International Partnership for Human RightsAnnual EU-Turkmenistan Human Rights Dialogue takes place in Ashgabat
  8. Nordic Council of MinistersNew campaign: spot, capture and share Traces of North
  9. Nordic Council of MinistersLeading Nordic candidates go head-to-head in EU election debate
  10. Nordic Council of MinistersNew Secretary General: Nordic co-operation must benefit everybody
  11. Platform for Peace and JusticeMEP Kati Piri: “Our red line on Turkey has been crossed”
  12. UNICEF2018 deadliest year yet for children in Syria as war enters 9th year

Latest News

  1. Polling booths open in UK's limbo EU election
  2. Dutch PM puts EU exit on agenda with election gamble
  3. EU development aid used to put European police in Senegal
  4. EU should stop an insane US-Iran war
  5. EU faces moment of truth at midnight on Sunday
  6. Dutch MPs: EU sanctions should bear Magnitsky name
  7. Far-right hate speech flooded Facebook ahead of EU vote
  8. Key details on how Europeans will vote

Stakeholders' Highlights

  1. Nordic Council of MinistersNordic commitment to driving global gender equality
  2. International Partnership for Human RightsMeet your defender: Rasul Jafarov leading human rights defender from Azerbaijan
  3. UNICEFUNICEF Hosts MEPs in Jordan Ahead of Brussels Conference on the Future of Syria
  4. Nordic Council of MinistersNordic talks on parental leave at the UN
  5. International Partnership for Human RightsTrial of Chechen prisoner of conscience and human rights activist Oyub Titiev continues.
  6. Nordic Council of MinistersNordic food policy inspires India to be a sustainable superpower
  7. Nordic Council of MinistersMilestone for Nordic-Baltic e-ID
  8. Counter BalanceEU bank urged to free itself from fossil fuels and take climate leadership
  9. Intercultural Dialogue PlatformRoundtable: Muslim Heresy and the Politics of Human Rights, Dr. Matthew J. Nelson
  10. Platform for Peace and JusticeTurkey suffering from the lack of the rule of law
  11. UNESDASoft Drinks Europe welcomes Tim Brett as its new president
  12. Nordic Council of MinistersNordic ministers take the lead in combatting climate change

Join EUobserver

Support quality EU news

Join us