Cyprus delays vote on tax raid on savings

Mar 18, 8:49 AM EDT — NICOSIA, Cyprus (AP) — A vote on a bailout pack­age for Cyprus that includes an imme­di­ate tax on all sav­ings accounts has been post­poned until Tues­day evening.

Yian­nakis Omirou, the speaker of Par­lia­ment, said the delay was needed to give the gov­ern­ment time to amend the deal reached over the week­end that prompted an out­cry from those who thought their money was safe.

In order to get (EURO)10 bil­lion ($13 bil­lion) in bailout loans from inter­na­tional cred­i­tors, Cyprus agreed to take a per­cent­age of all deposits — includ­ing ordi­nary cit­i­zens’ sav­ings — an unprece­dented step in Europe’s 3 1/2-year debt crisis.

The news was a big sur­prise and stoked fears that deposits in other coun­tries could be tar­geted. Shares around the world and the euro took a pound­ing Mon­day even though the Cypriot econ­omy accounts for only 0.2 per­cent of the com­bined out­put of the 17 Euro­pean Union coun­tries that use the euro.

“The dam­age is done,” said Louise Cooper of Coop­erCity. “Euro­peans now know that their sav­ings could be used to bailout banks.”

The Cypriot gov­ern­ment is now try­ing to mod­ify the terms of the orig­i­nal deal and in par­tic­u­lar to get a bet­ter deal for small savers with less than (EURO)100,000. The week­end deal fore­saw a one-off levy of 6.75 per­cent on those sav­ings, ris­ing to 9.9 per­cent for those above the (EURO)100,000 mark.

Law­mak­ers in Nicosia are con­sid­er­ing how to amend the deal with­out reduc­ing the total (EURO)5.8 bil­lion ear­marked to be raised through the mea­sure. One solu­tion doing the rounds is to make the tax more grad­u­ated: plac­ing a one-time 3 per­cent levy on deposits below (EURO)100,000, ris­ing to 15 per­cent for those above (EURO)500,000.

Still, the gov­ern­ment has a bat­tle to get a major­ity in the 56-member Par­lia­ment — a sce­nario that could crip­ple the Cypriot economy.

Some 25 law­mak­ers from com­mu­nist AKEL, social­ist EDEK and the Green party have said they would vote down the levy that they had crit­i­cized as disastrous.

Any mod­i­fi­ca­tion must be approved by the other euro­zone finance min­is­ters before the Cypriot par­lia­ment can vote on it.

“I believe (the levy) was a bad idea but they imposed it on us,” Cypriot Finance Min­is­ter Michalis Sar­ris told reporters in Par­lia­ment Mon­day. Sar­ris said the levy was the least worst option since the country’s euro area part­ners had insisted on a much larger sav­ings cut.

Cyprus’ banks were closed Mon­day for a sched­uled pub­lic holiday.

Posted by Randa Wagner on Mar 18 2013. You can follow any responses to this entry through the RSS Feed. Both comments and pings are currently closed.