Cyprus aims to let small savers out of deposit tax

Cyprus’s government proposed on Tuesday to spare small savers from a divisive levy on bank deposits but said it expects parliament to reject the measure, needed to secure an international bailout and avoid default and a banking collapse.

Cyprus’s government proposed on Tuesday to spare small savers from a divisive levy on bank deposits but said it expects parliament to reject the measure, needed to secure an international bailout and avoid default and a banking collapse.

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Unless parliament accepts the levy on deposits, EU countries say they will withhold a bailout, plunging one of the smallest European states closer to financial oblivion with potentially severe consequences for the rest of the troubled euro zone.

“The feeling I’m having is that the house is going to reject the bill,” President Nicos Anastasiades told reporters. Asked why, he added: “Because they feel and they think that it is unjust and it’s against the interests of Cyprus at large.”

Asked what he would do next, he said: “We have our own plans.”

Europe’s demand at the weekend that Cyprus break with previous EU practice and impose a levy on bank accounts as part of a €10 billion ($13 billion) bailout sparked outrage among Cypriots and unsettled financial markets.

Anastasiades refused to accept a levy of more than 10% on deposits above €100,000 euros, which meant taxing smaller accounts too.

That hurts ordinary savers with deposits that they thought came with a state guarantee.

Stunned by the backlash and fearing rejection by Cypriot lawmakers, euro zone finance ministers urged Nicosia on Monday to avoid hitting accounts below €100,000 euros, and instead increase the levy on big accounts, which are unprotected by the state deposit-insurance system.

The European Union and International Monetary Fund are demanding Cyprus raise €5.8 billion to secure its bailout, needed to rescue its financial sector.

A revised draft bill seen by Reuters would exempt savings under €20,000 euros, charge a rate of 6.75% for amounts between €20,000 and €100,000 and maintain a 9.9% tax on deposits above that level.

French finance minister Pierre Moscovici said the euro zone could not lend Cyprus any more, since the country’s debt would become unmanageable.

“Above 10 billion euros we are entering into a size of debt that is not sustainable,” Moscovici told reporters in Paris.