Cypriot ministers rushed on Monday to revise a plan to seize money from bank deposits as part of an EU bailout, in an effort to ensure lawmakers supported it in a vote later in the day.
The weekend announcement that Cyprus would impose a tax on bank accounts as part of a €10 billion ($13 billion) bailout broke with previous practice that depositors’ savings were sacrosanct and sent a shiver across the bloc, causing the euro to tumble and stock markets to dive.
Ahead of the vote in parliament, the government was working on a plan to soften the blow to smaller savers, by tilting more of the tax towards those with deposits greater than €100,000 ($130,700) — many of them Russians, eliciting an angry reaction from President Vladimir Putin.
The government says Cyprus has no choice but to accept the bailout with the levy on deposits, or go bankrupt. A Cypriot government source told Reuters introduction of a tax-free threshold for smaller bank deposits was under discussion but not yet agreed.
The euro zone has indicated that changes would be acceptable as long as the return of around six billion euros is maintained. If the Cypriot parliament votes the deal down, the euro zone would face a real risk of being dragged back into crisis.
Putin criticised the levy imposed by the European Union on bank deposits in Cyprus as unfair and setting a dangerous precedent.
“While assessing the proposed additional levy on bank accounts in Cyprus, Putin said that such a decision, should it be made, would be unfair, unprofessional and dangerous,” Kremlin spokesman Dmitry Peskov told journalists.
Russian citizens account for the majority of the billions of euros held in Cypriot banks by foreign depositors, and Russian banks are heavily exposed to the island as a favored offshore centre for big business.