Facing Bailout Tax, Cypriots Rush to Get Their Money Out of Banks
By LIZ ALDERMAN
NEW YORK TIMES
ATHENS — In a move that could set off new fears of contagion across the euro zone, anxious depositors drained cash from automated teller machines in Cyprus over the weekend, hours after European officials in Brussels required that part of a new €10 billion bailout be paid for directly from the bank accounts of ordinary savers.
Petros Karadjias/Associated Press
The decision — a first in the three-year-old European financial crisis — raised questions about whether bank runs could be set off elsewhere in the euro zone. Jeroen Dijsselbloem, the president of the group of euro area ministers, declined Saturday to rule out taxes on depositors in countries beyond Cyprus, although he said such a measure was not currently being considered.
A scheduled parliamentary vote on the plan at an emergency meeting Sunday was postponed until Monday. The delay was to give a chance for the newly elected Cypriot president, Nicos Anastasiades, to brief lawmakers, according to the president’s office.
Although banks placed withdrawal limits of €400, or about $520, on A.T.M.’s, most had run out of cash by early evening. People around the country reacted with disbelief and anger.
“This is a clear-cut robbery,” said Andreas Moyseos, a former electrician who is now a retiree in Nicosia, the capital. Iliana Andreadakis, a book critic, added: “This issue doesn’t only affect the people’s deposits, but also the prospect of the Cyprus economy. The E.U. has diminished its credibility.”
In Nicosia, a crowd of about 150 demonstrators gathered in front of the presidential palace late in the afternoon after calls went out on the social media to protest the abrupt decision, which came with almost no warning at the beginning of a three-day religious holiday on the island.
Under an emergency deal reached early Saturday in Brussels, a one-time tax of 9.9 percent is to be levied on Cypriot bank deposits of more than €100,000 effective Tuesday, hitting wealthy depositors — mostly Russians who have put vast sums into Cyprus’s banks in recent years. But even deposits of less than that amount are to be taxed at 6.75 percent, meaning that Cypriot creditors will be confiscating money directly from retirees, workers and regular depositors to pay off the bailout tab.
Mr. Anastasiades said taxing depositors would allow Cyprus to avoid implementing harsher austerity measures, including pension cuts and tax increases, of the type that have wreaked havoc in neighboring Greece. That thinking appealed to some Cypriots, including Stala Georgoudi, 56. “A one-time thing would be better than worse measures,” she said. “Procrastinating and beating around the bush would be worse.”
But Sharon Bowles, a British member of the European Parliament who is the head of the body’s influential Economic and Monetary Affairs Committee, said the accord amounted to a “grabbing of ordinary depositors’ money” in the guise of a tax.
“What the deal reflects is that being an unsecured or even secured depositor in euro-area banks is not as safe as it used to be,” said Jacob F. Kirkegaard, an economist and European specialist at the Peterson Institute for International Economics in Washington. “We are in a new world.”
Cyprus had been a blip on the radar screen of Europe’s long-running debt crisis — until now.
Hobbled by a devastating banking crisis linked to a slump in Greece’s economy, where Cypriot banks made piles of loans that are now virtually worthless, Cyprus on Saturday became the fifth country in the euro union to receive a financial lifeline since Europe’s debt crisis broke out. As the euro zone’s smallest economy, Cyprus had hardly been considered the risk for the euro group that Greece, Ireland, Portugal or Spain were.
But the surprise policy by the International Monetary Fund, the European Central Bank and the European Commission is the first to take money directly from ordinary savers. In the bailout of Greece, holders of Greek bonds were forced to take losses, but depositors’ funds were not touched.
Mr. Anastasiades, who was elected just a few weeks ago, called the decision “painful” but said it would lead to “the historic and definitive rescue of our economy.” He said the consequences of rejecting the deal would be the collapse of at least one of Cyprus’s major banks, amid widespread weakness in the country’s banking system.
Cypriot banks are loaded up on bad loans made to Greek companies and individuals, which have turned sour at an alarming rate as Greece has dealt with the fourth year of a devastating economic and financial crisis.
“I’m not surprised that people are trying to get their money out in Cyprus; that is entirely to be expected,” Mr. Kirkegaard said. “They wake up Saturday morning and are told on the radio their bank deposits are at risk.”
The deposit tax, which is expected to raise €5.8 billion appeared aimed at gleaning large amounts of cash from the accounts of wealthy Russians, who have poured deposits into Cypriot banks in the past several years. Chancellor Angela Merkel of Germany, who faces a pivotal election in September, has been particularly concerned that most of the bailout money could wind up in the hands of Russian gangsters and oligarchs, a fear backed by a recent report by the German intelligence agency. Officials in Cyprus have said there is no proof the Russian cash is of questionable origin. They insist they cracked down on money laundering before joining the European Union.
Because Russian depositors would have to share the burden, it would ultimately relieve Cyprus from its debt load by allowing a one-time payment upfront rather than deeper cuts to salaries and pensions or additional privatizations in the future.
Mr. Kirkegaard said he was surprised that Cypriot creditors had decided to go after smaller depositors, but that part of the rationale might have been avoiding putting too much pressure on businesses, which hold a large share of the high-value accounts.
Given the stunned reaction, it was not certain the measure would pass the Cyprus Parliament. Nicholas Papadopoulos, the head of Parliament’s financial affairs committee, said the decision was “much worse than what we expected and contrary to what the government was assuring us, right up until last night,” Reuters reported.
Reporting was contributed by Nicholas Kulish from Berlin; Landon Thomas Jr. from London; James Kanter from Brussels; and Andreas Riris from Nicosia, Cyprus.