Sunday

20th Aug 2017

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.

Thank you for reading EUobserver!

Subscribe now and get 40% off for an annual subscription. Sale ends soon.

  1. €90 per year. Use discount code EUOBS40%
  2. or €15 per month
  3. Cancel anytime

EUobserver is an independent, not-for-profit news organization that publishes daily news reports, analysis, and investigations from Brussels and the EU member states. We are an indispensable news source for anyone who wants to know what is going on in the EU.

We are mainly funded by advertising and subscription revenues. As advertising revenues are falling fast, we depend on subscription revenues to support our journalism.

For group, corporate or student subscriptions, please contact us. See also our full Terms of Use.

If you already have an account click here to login.

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.

Airbnb too 'different' to pay EU tax

US home rental firm said its “model is unique” because most of the money stays in pockets of local people, as France and Germany prepare EU tax crackdown.

EU cautious with German diesel plan

The European Commission welcomed the German carmakers' pledge to update software in diesel cars, but is waiting for details on how emissions will be reduced.

News in Brief

  1. Macedonia sacks top prosecutor over wiretap scandal
  2. ECB concerned stronger euro could derail economic recovery
  3. Mixed Irish reactions to post-Brexit border proposal
  4. European Union returns to 2 percent growth
  5. Russian power most feared in Europe
  6. Ireland continues to refuse €13 billion in back taxes from Apple
  7. UK unemployment lowest since 1975
  8. Europe facing 'explosive cocktail' in its backyard, report warns

Stakeholders' Highlights

  1. European Healthy Lifestyle AllianceDoes Genetics Explain Why So Few of Us Have an Ideal Cardiovascular Health?
  2. EU2017EEFuture-Themed Digital Painting Competition Welcomes Artists - Deadline 31 Aug
  3. ACCABusinesses Must Grip Ethics and Trust in the Digital Age
  4. European Jewish CongressEJC Welcomes European Court of Justice's Decision to Keep Hamas on Terror List
  5. UNICEFReport: Children on the Move From Africa Do Not First Aim to Go to Europe
  6. Centre Maurits CoppietersWe Need Democratic and Transparent Free Trade Agreements Says MEP Jordi Solé
  7. Counter BalanceOut for Summer, Ep. 2: EIB Promoting Development in Egypt - At What Cost?
  8. EU2017EELocal Leaders Push for Local and Regional Targets to Address Climate Change
  9. European Healthy Lifestyle AllianceMore Women Than Men Have Died From Heart Disease in Past 30 Years
  10. European Jewish CongressJean-Marie Le Pen Faces Trial for Oven Comments About Jewish Singer
  11. ACCAAnnounces Belt & Road Research at Shanghai Conference
  12. ECPAFood Waste in the Field Can Double Without Crop Protection. #WithOrWithout #Pesticides