Panic in Cyprus as levy imposed

17 March 2013

In a move that could set off new fears of contagion across the eurozone, anxious depositors drained cash from automated teller machines in Cyprus on Saturday, hours after European officials in Brussels required that part of a new 10 billion euro bailout be paid for directly from the bank accounts of ordinary savers.

Up to 60,000 British savers are to lose thousands of pounds each after European finance chiefs ordered an unprecedented raid on personal bank accounts.

Expats and UK troops based in Cyprus will have their savings decimated as part of a  painful bid to bail out the bankrupt island.  Britons have about £1.7 billion of deposits in Cyprus and could lose up to £170 million.

The Cypriot government has agreed to seize up to ten per cent of savings and use the money to bail out the island’s crisis-hit banking system. The move sparked panic and violent protests yesterday as crowds desperately tried to withdraw their money at cash machines.

Cypriot president Nicos Anastasiades, who agreed to the raid following ten-hour talks with European finance chiefs, said it was necessary because Cyprus was in a ‘state of emergency’ and failure to enact the Brussels plan would be ‘catastrophic’.

Under the deal, all bank deposits over €100,000 will be hit with a levy of 9.9 per cent. Those with smaller savings will pay 6.75 per cent. The raid will raise €5.8 billion, which will be added to a €10 billion bailout from Brussels.

But financial experts said the move – designed to stop Cyprus crashing out of the euro, potentially destroying the currency – would send shock waves through the eurozone. If savers in other troubled nations fear their accounts might be next, they could withdraw their money and spark a catastrophic run on the  banks.

 Economist Howard Archer from IHS Global Insight said: ‘It is an alarming precedent to hit the man in the street. As much as they say this is a one off, people will say if they can do it once they could do it again.’

Tory MP Douglas Carswell added: ‘We should all be extremely worried about this. It shows that ordinary Europeans are being fleeced by the Continent’s elite in order to rescue foolish banks. Why would you risk putting your money in Greek, Spanish or Portuguese banks after this?’

The European Central Bank said Britons have £1.7 billion deposited on the island. British expats were stunned by the news, with many left high and dry by the restrictions on accounts.

Cash machines had been working, but many ran out of notes because of the panic withdrawals. Tomorrow is a public holiday in Cyprus, too, so savers will have to wait until Tuesday until they can access their money.

Angry crowds gathered to demonstrate outside the presidential palace in the capital of Nicosia yesterday. President Anastasiades held emergency talks with his cabinet and other party leaders last night and is expected to make a televised address today explaining the situation.

Because of tomorrow’s public holiday, he has two days to pass a law  to enact the Brussels deal in time to seize the cash from bank accounts before Tuesday morning.

In a statement he said: ‘We either choose the catastrophic scenario of disorderly bankruptcy or the  scenario of a painful but controlled management of the crisis.’

An official said today that Cyprus's parliament had postponed the debate and vote on the controversial levy on all bank deposits that the country's creditors demanded in exchange for €10billion [£8.7million] in rescue money.

Parliamentary official Antonis Koutalianos said the vote that was scheduled for the afternoon today has been pushed back to tomorrow, but the exact hour of the vote has yet to be fixed. It is understood savers will be offered shares in Cyprus banks as compensation for the raid on their savings, but it is unlikely to appease those who have lost hard cash.

A spokesman for the Cypriot government said yesterday the agreement with Brussels was ‘serious but not tragic’ and said that the EU had wanted a much higher levy, but the government had fought hard against it.

He said: ‘The dilemma is whether we would have a functioning economy or total collapse on Tuesday .  .  . whether to give in at the 6.75 per cent mark or lose 100 per cent.’

Source: Daily Mail

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