Cypriots who will have up to 9.9 percent of their bank accounts seized to pay for part of the cost of the country’s bailout from international lenders will get in return bonds from natural gas earnings off the island’s coast as collateral, newly-elected President Nicos Anastasiades promised in a televised address, trying to defuse growing anger ahead of a critical vote by the Parliament whether to back the scheme.
Officials of the Eurozone, the 17 countries that use the euro, will join with the European Central Bank and International Monetary Fund, the same Troika putting up rescue monies for Greece, to lend Cyprus 10 billion euros ($13 billion) but insisted on the one-off special tax on bank accounts. Anastasiades, who had campaigned against the idea while running for the top office, said he had been forced into it and that he would try to change the terms.
The Parliament on March 18 will decide whether to approve the deal and there signs the government fears it could lose the vote. If it does, the President said the island’s banks will collapse and the country will descend into chaos, but depositors are furious that they are being forced to partially pay because their banks bought huge amounts of Greek bonds that were devalued by the Greek government in its bid to write down a crushing debt.
Anastasiades admitted that Cyprus is undergoing “the most tragic moments since 1974,” in reference to the Turkish invasion that has led to the occupation of the northern third of the island. “The first option would have led to a disorderly default as a result of the decision by the European Central Bank for the immediate stop of the emergency liquidity assistance to the two major Cypriot banks.
“The second is the option of a very difficult but controlled and manageable situation that will eventually lead to the stabilization of the economy and to a rebound,” said Anastasiades, rendering full account of the disastrous impact on the country a disorderly default would have entailed.
It was the same argument Greek leaders have been making for three years while imposing harsh austerity measures that have worsened that country’s six-year recession, created a 26.4 percent unemployment rate and closed 68,000 businesses.
“In recognition of its obligations, the state will offer to those who will keep their deposits in Cyprus bonds equal to half of their contribution now, linked to the future public revenues from natural gas,” he said, adding that all this is meant to relieve future generations from the consequences of this generation’s mistakes.
It was an apparent attempt to stop a run on the banks when they open, although they are closed on Monday, March 18 for a national holiday and the government reportedly ordered them to stay shut for at least another day. There are worries that enraged depositors will withdraw all the rest of their accounts after sums up to 100,000 euros ($130,000) will be taxed immediately at 6.75 percent, and those over 100,000 euros will suffer a 9.9 percent tax. In addition, the interest paid will be taxed up to 25 percent, a further seizure of depositor monies.
A snap survey taken by Insights Market Research and the University of Cyprus showed that 72 percent of people were strongly against the plan and that deposits under 100,000 euros should be untouched and 71 percent said the Parliament should reject it, but 62 percent don’t want to leave the Eurozone, the same contradiction that shows in Greek polls where 94 percent of people are against austerity but want to stay in the euro. Anastasiades, in his first test as President after only a few weeks in office, received a failing grade on his performance from 73 percent of respondents.