People with Cyprus bank accounts will lose up to 10% of their savings as the price of a 10 billion euro (?8.6 billion) rescue package for the cash-strapped country from its European partners and the International Monetary Fund.
The bailout was agreed early on Saturday in a bid to keep the island nation from a bankruptcy that could rekindle the region's debt crisis.
But in a major departure from established policies, the package also includes a one-off levy on the money held in bank accounts in Cyprus. Analysts have warned that making depositors take a hit threatens to undermine investors' confidence in other weaker eurozone economies and might possibly lead to bank runs.
In return for the rescue loans Cyprus will trim its deficit, shrink its troubled banking sector, raise taxes and privatise state assets, said the Netherlands' Jeroen Dijsselbloem, presiding over meetings of the 17-nation eurozone's finance ministers. "The assistance is warranted to safeguard financial stability in Cyprus and the eurozone as a whole," he said, speaking after nearly 10 hours of negotiations.
People with less than 100,000 euro (?86,000) in their Cypriot bank accounts will have to pay a one-time tax of 6.75%, those with more will lose 9.9%. The measure is expected to net 5.8 billion euro (?5bn) in additional revenues, Mr Dijsselbloem said, greatly reducing the country's financing need.
"We found it justified in terms of burden sharing to also involve the depositors," said Mr Dijsselbloem, noting that it was a "unique measure" because of Cyprus' outsized banking system. "As it is a contribution to the financial stability of Cyprus, it seems just to ask a contribution of all deposit holders."
But the measure risks to scare investors in Europe's weaker economies, which could lead them to move their deposits to more stable eurozone countries like Germany. In that case, banks in southern Europe's economies might be considerably weakened and possibly require new bailouts. That could then weaken the respective governments, which might then need further assistance from their eurozone partners, possibly setting off a vicious spiral.
Joerg Asmussen, a member of the European Central Bank's governing council, sought to dismiss fears of bank troubles stemming from the levy, saying the central bank stood ready to provide financial institutions with emergency liquidity assistance. "The levy, it's an appropriate tool. It's really tailor-made to the situation in Cyprus," he said. "It's a country in extreme financing need and what you do is to expand the tax base, not only to residents but also to non-residents."
Russian citizens are estimated to have at least 20 billion euro (?17.3bn) in deposits in Cyprus. Mr Asmussen stressed that there was no risk of such a levy being implemented in other countries that have already received bailouts, such as Greece, Ireland or Portugal because those countries' financing needs are covered ,by their international rescue loans.
In a sign of how exceptional and urgent a decision the one-time levy is, Cypriot banks are already implementing measures to make sure that depositors cannot withdraw money to shrink the tax basis, Mr Asmussen said. The remainder of their holdings can be freely withdrawn. Cypriot MPs are expected to decide a law on the bank levy over the weekend and the money will be extracted early next week.
chris cooley condoleezza rice Perry Hall High School bill cosby us open bill nye Hurricane Isaac 2012
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.