The Cypriot president is predicting the island nation’s parliament will reject a bailout plan demanded by international lenders that calls for taxing the savings accounts of depositors at the country’s banks.
Nicos Anastasiades, who won election last month, told reporters Tuesday that lawmakers do not think the tax is fair.
“The feeling I’m having is that the house is going to reject the bill.” (Reporter asking: Why is that?) “Because they feel and they think it’s unjust and that it is against the interests of Cyprus at large.”
The Cypriot parliament is set to vote later Tuesday on the $13 billion rescue plan sanctioned by Cyprus’s international lenders. But its rejection would throw the country’s bailout into limbo.
If that happens, Mr. Anastasiades said, without elaborating, “We have our own plans.”
The deal with the lenders called for the tax on savings accounts to contribute $7.6 billion toward the country’s bailout. But Cypriot savers protested, as did Russian President Vladimir Putin. Russian oligarchs have massive sums in Cypriot accounts.
At first, the bailout called for all accounts to be taxed — almost 10-percent on those with more than $131,000 in them. Lawmakers in Cyprus are discussing revised legislation that would eliminate the tax on accounts with less than $25,000. But that plan would fall short of the $7.6 billion demanded by the International Monetary Fund, the European Central Bank and Cyprus’s eurozone neighbors.
Cypriot banks are closed until Thursday to keep panicked investors from withdrawing their cash.
One Russian economist, Renaissance Capital’s Ivan Tchakarov, said his country’s depositors never envisioned that their savings would be taxed in Cyprus.
“There has been this kind of unwritten contract between the Russian depositors who have placed money in Cyprus and the Russian government, that it’s actually safe for us to put money there, because there’s a very strong relationship between Cyprus and Russia. We know that our government has extended loans to Cyprus. We never thought that such a thing might happen. So I think this contract has been violated and I think it will be more challenging for a political establishment here in Russia to deal with this issue.”
The Cypriot economy accounts for only a very small fraction of the eurozone’s economic fortunes, but none of the previous bailouts for Greece, Portugal, Ireland and the Spanish banking system has taxed savings. Some analysts fear that taxing deposits in Cyprus could set a precedent that might be followed in other debt-ridden countries in the 17-nation euro currency union and ignite a run on banks to withdraw money.
(Photo: European People’s Party)