Eurozone ministers say small savers in Cyprus should be protected

Monday 18 March 2013 22.34
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The levy on bank deposits has sparked anger among those who thought their money was safe
The levy on bank deposits has sparked anger among those who thought their money was safe
The government says Cyprus has no choice but to accept the bailout with the levy on deposits, or go bankrupt
The government says Cyprus has no choice but to accept the bailout with the levy on deposits, or go bankrupt
The immediate focus will be on whether large amounts of funds are withdrawn from Cyprus this week
The immediate focus will be on whether large amounts of funds are withdrawn from Cyprus this week

Eurozone ministers urged Cyprus to let smaller savers escape a levy on bank deposits, before a parliamentary vote that will either secure the island's financial rescue or threaten default.

An announcement that Cyprus would impose a levy on bank accounts as part of a €10 billion bailout by the European Union broke with previous practice that depositors' savings were sacrosanct.

The euro and stock markets fell on concern that developments in Cyprus could reignite the financial crisis in the 17-nation eurozone, while angry Cypriots staged protests outside their heavily guarded parliament.

Before tomorrow's vote, which is too close to call and would send reverberations across the currency area if lost, eurozone finance ministers held an evening teleconference and said depositors with less than €100,000 should be protected.

Under the deal struck in Brussels on Saturday, bank deposits under that level would have faced a levy of 6.7%, ripping up the protection savers thought they enjoyed on insured deposits up to that limit, while those above would be stung for 9.9%.

The finance ministers said they favoured a higher, 15.6% hit for richer savers, so more modest accounts could be spared.

That would look similar to a deal the Cypriots, fearing the destruction of their banking model which lures money from rich Russians and others, baulked at in Brussels at the weekend.

It was not clear if Nicosia will accept it now but if it does, it would still raise €5.8 billion from the bank levy as planned, a Greek finance ministry source said.

The decision to target bank accounts stunned Cypriots, and police sealed off parliament as about 400 people staged a noisy protest outside, aggrieved that their small island of one million people should be singled out for such treatment.

Demonstrators honked horns and waved placards reading "Hang the Banksters, Hands off People's Savings" and "Merkel go home and stay".

Residents emptied cash machines over the weekend and investors feared a precedent had been set that could reignite turmoil in the single currency area that the European Central Bank has calmed in recent months with its pledge to do whatever it takes to save the euro.

The parliamentary speaker said debate on the bank levy would be delayed until tomorrow to buy more time to build consensus.

Banks, shut on Monday for a bank holiday, will remain closed on Tuesday and Wednesday to avert any panic.

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