Cyprus
Posted: Sun Mar 17, 2013 5:59 pm
ekathimerini | Shock in Cyprus as bailout brings bank account haircut
What?The Eurogroup reached on Friday night an unprecedented decision for bailing out Cyprus that dictates a haircut on all bank accounts on the island’s banks with immediate effect, while cash withdrawals are not allowed for the time being, generating unrest.
Along with loans adding up to 10 billion euros from the European Support Mechanism, Cyprus will have to find another 7-7.5 billion euros from privatizations and from a 6.75 percent one-off haircut on all bank accounts with a balance up to 100,000 euros, rising to 9.9 percent on accounts exceeding 100,000 euros.
Already bank customers are gathering outside major and cooperative banks, Skai television reported on Saturday morning, as angry depositors demand their money.
Depositors will get shares of the banks they are clients of in return for the capital lost, of the same value as the haircut their accounts have suffered.
This is estimated to fetch some 6 billion euros to the state, bridging most of the gap between the 10 billion euros the ESM is offering to Cyprus and Nicosia’s requirements of an estimated 17 billion.
This is the first time in the eurozone that a levy has been imposed not on the interest of bank accounts but on the capital itself. In addition to that there is a levy on interest, too, and an increase in the 10 percent corporate tax that has been one of the main driving forces behind Cyprus’s financial progress after the 1974 Turkish invasion, generating growth by attracting foreign direct investment.
Notably, the account haircut does not affect bank accounts in Cypriot bank branches based in Greece, according to sources from the Greek Finance Ministry.
Tax on interest will amount to between 20 and 25 percent.