Saturday, March 16, 2013

Levy on savings in Cyprus banks... Eurozone bailout?

I don't switch my computer on until after my walk, if  have one, and any necessary shopping or housework, and breakfast, and a shower... so it wasn't until about ten o'clock this morning that I sat down to check my email, and Facebook, and also the news.  Not that I'm a great one for world events, or politics.. I tend more towards human interest stories, on the whole.

But this morning, this story about Cyprus and the Eurozone bailout leapt out at me when I looked at the BBC news site. I don't begin to understand economics, but am aware that Cyprus is in huge debt - not entirely the island's fault - and that with the new government, elected recently, there was likely to be a big bailout package agreed. This appears to be the case, but according to the article 'savers' in banks - such as the Bank of Cyprus: 

Or the Laiki Bank:

are going to be subject to a one-off 'tax'.  Those with more than 100,000 euro in their accounts will have to pay almost 10%, which is rather a large amount of money at that level, and those with less will  have to pay 6.75%.  Moreover, to stop people transferring all their money out, or withdrawing it, all electronic banking is on hold for this (Carnival) weekend. Monday is a public holiday for Green Monday, and the levy will be imposed, I gather, on Tuesday morning. 

I was not clear whether this 'tax' applies just to savings accounts - in which case, we will be charged about €14 - or to current accounts, in which case it will be a bit more - but still not a great deal. We don't tend to keep much in our Cyprus account; we just transfer what we need each month from the UK. 

Having read the story at the BBC site, I then looked at the Cyprus Mail, the other place where I tend to glance at news each morning. Savers are forced to bear costs, the headline proclaimed.  The story is similar, and, again, no indication whether it's just savings (although that is perhaps implied) or all accounts.  There is a lengthy and somewhat angry comment thread at the end of that article, unsurprisingly.  It does seem like an odd thing, legally speaking, to be able to deduct money from ordinary people with no warning whatsoever. However, if the alternative was for the banks to become bankrupt and lose everything, it's certainly a lesser problem. 

I am surprised to learn that apparently about half the Cyprus savers are non-resident Russians, who will be contributing a large amount of this 'tax'.  Perhaps there are also ex-pats living here who have seen Cyprus as a tax haven - rates are low.  But there must also be people who have been saving carefully and frugally over the years, only to find that they lose a significant amount, out of the blue. Then there are small businesses, or organisations such as Richard's, who struggle to keep afloat, and who will be hit very hard indeed by this. 

Clearly it's a news story which will run for a while - other Eurozone countries are going to be worried, and if this tax is legal it's going to make a lot of people give up on banks, or withdraw all their savings, which - I would have thought - would make it still worse. 

Later news stories have reported incredulity giving way to fury in Cyprus, and shock as savers wake up to the levy.  The BBC is also reporting individual stories about the bailout

What mystifies me is that the reports say that levying this 'tax' is going to raise 6 billion euros.  That's a LOT of money. And since the majority is apparently going to come from people at the higher threshold, that means that 6 billion is only 10% of what is currently deposited in the banks.  

So... why are the banks supposed to be in crisis?  


Anvilcloud said...

That seems awfully heavy handed.

Steve Hayes said...

Well the money that those fat cat bankers keep giving themselves in the form of bonuses has to come from somewhere.

Gina said...

I'm sorry your island is having to go through something like this.