News Column

Cyprus Mulls Deposit Tax to Dodge Meltdown

March 22, 2013
euro dominos

The finance minister of Cyprus said Friday the cash-strapped country was again considering an unpopular levy on bank deposits to avert financial meltdown.

Days after its parliament rejected an unprecedented plan to effectively seize up to 10 per cent of customers' deposits, officials said there may be no alternative.

"I think the tax on deposits is on the table again ... this would finalise the country's bailout package," said Finance Minister Michael Sarris.

Cyprus has struggled to raise billions of euros by Monday to qualify for a European and International Monetary Fund rescue package for its bank sector.

Its desperate leaders, who have scrambled all week for a solution, Friday faced a rejection of immediate help from Russia, growing EU impatience and anger in Germany.

Worried Cypriots, meanwhile, again queued at cash machines to get out their money, while angry protesters noisily heaped pressure on politicians.

The crisis in Cyprus, a tiny EU member, has reignited fears about the wider 17-member eurozone.

The Mediterranean nation relies on a large financial sector that is favoured by foreign millionaires as a tax shelter and, critics charge, to launder ill-gotten money.

As the eurozone debt crisis has battered its banks, Cyprus has needed a large bailout from the European Commission, the European Central Bank and the IMF.

But the so-called troika of lenders - including the largest EU economy, Germany, which is in an election year - are loathe to use taxpayers' money to rescue Russian tycoons.

They have demanded that Nicosia, in order to qualify for a 10-billion-euro rescue loan, raise an additional 5.8 billion euros by itself - spelling tough choices for Cyprus.

The ECB has given Cyprus until Monday to come up with a new plan, warning that it will otherwise stop providing funding to its banks, which would spell financial disaster.

As a Plan B, the government had mentioned a so-called investment solidarity fund of gas revenues, money from pension funds, and bonds and securities.

Restructuring the country's second largest bank, Laiki, which has been exposed to bad Greek debt, could raise an estimated 3.6 billion euros, the central bank has said.

Cyprus had also asked Moscow for help, for example to invest in its offshore gas sector or its banks. However, Russia said Friday negotiations had ended without result.

Prime Minister Dmitry Medvedev later clarified that Moscow had "not shut the door" on Cyprus but would consider helping only after Nicosia had finalized its EU-IMF bailout.

Almost a third of the estimated 70 billion euros in deposits in Cyprus banks are believed to be held by Russians.

Meanwhile, German Chancellor Angela Merkel voiced frustration with Cyprus, saying it was testing the troika's patience and had failed to communicate with it all week.

Merkel told a meeting of her conservative Christian Democrats that she rejected a proposal to dip into Cypriot pension funds, and said "I don't want to see a crash."

European Commission President Jose Manuel Barroso, on a Moscow visit, said Brussels was still waiting for a new proposal and warned "I believe there is no time to lose."

Cypriot Government spokesman Christos Stylianides, meanwhile, insisted that the country was in the final stages of reaching a viable solution.

"Parliament will soon convene to make the difficult decisions," he said. "The next few hours will determine the future of the country."

Meanwhile, Greek Finance Minister Yannis Stournaras said his country was in the process of the acquisition of all Cypriot banks in Greece.

Reports said Greece's Pireaus Bank had submitted a proposal to buy both the Bank of Cyprus and Laiki.

Source: Copyright 2013 dpa Deutsche Presse-Agentur GmbH

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