Tuesday 19 March 2013

Confiscation in Cyprus

Cyprus banks will stay closed until Thursday
Banks in Cyprus will remain closed until at least Thursday while talks continue over controversial plans to put a levy on savers' deposits.



BBC,
18. March, 17.23 GMT, 2013


The news that bank accounts face a one-off tax to help fund the country's bailout saw depositors rush to cash machines, which soon ran out of funds.

Politicians want to finalise the bailout terms before banks re-open, as fears mount of a bank run.

Plans for a levy unnerved investors, sending shares and the euro lower.

Cyprus's banks were closed on Monday for a Bank Holiday, and the country's central bank said they would now remain shut until Thursday at least.

On Saturday, the government, the European Union and International Monetary Fund agreed an outline deal for a levy on bank deposits in return for a bailout worth 10bn euros ($13bn; £8.6bn).

The move sparked protests in Cyprus, and criticism from Russia, many of whose nationals hold large bank deposits on the island.

Politicians in Cyprus are continuing talks in a bid to agree final details of levy, and there are reports that eurozone finance ministers are due to hold a teleconference later on Monday to review the bailout terms.

News that Cyprus is to tax savers' money to help fund the bailout unsettled investors. The Spanish and Italian stock markets were down 2%, with bank shares the hardest hit.

The euro lost 1% against both the pound and the dollar, leaving it at 85.6p and $1.295 respectively.

Earlier, Japan's Nikkei 225 index fell 2.7%, while Hong Kong's Hang Seng and Australia's ASX 200 dipped 2%.

Many major banks in Italy, France and Spain, some of the eurozone's most indebted countries, were down between 4% and 5%.

In France, Credit Agricole and Societe Generale were the worst affected, losing about 4.5%, while Spain's BBVA lost a similar amount.

In Germany, Deutsche Bank was down 3%, while Commerzbank was 1.3% lower.

Some investors think the Cyprus plan could prompt depositors elsewhere, particularly in Greece, Portugal, Ireland, Italy, Greece and Spain, to withdraw their funds.

"The unprecedented move is an extreme measure and in our view, it will spread some panic... we cannot rule out some capital outflows," said Annalisa Piazza of Newedge Strategy.

But most investors thought the falls would not last long.

Kevin Lilley, European equities fund manager at Old Mutual Asset Management, said he was sitting tight: "I am not doing anything about it. My initial thoughts are that this is a circumstance that is peculiar to Cyprus."

He added that if he had surplus cash, he would probably be taking advantage of the price falls and buying.

A number of other leading fund managers said they, too, were not changing their investment strategy.

The significant players in the eurozone don't really mind how the levy on Cypriot depositors is structured, as long as it still produces a return of about 6bn euros.

So there is considerable scope for putting more of the burden on people with deposits greater than 100,000 euros (many of whom will be wealthy Russians).

But some small savers will still be made to pay, and that does cross a line - breaking the spirit of deposit guarantees, if not the letter of the law. Officials point out that depositors will get banks' shares in return for the levy which is being forced upon them, so they aren't losing everything.

But if a seed of doubt has been sown in the minds of depositors elsewhere in the eurozone, that will be a real cause for concern. A full-blown bank run seems highly unlikely at this stage. But we should watch closely for any signs of a slow surreptitious withdrawal of deposits in other countries.

David Cumming of Standard Life told BBC News he thought the wider impact would be limited. "I don't think it will have a lasting impact, I think it's an excuse for a correction after a strong run-up."

He said people trusted the EU's mechanisms for maintaining stability in the eurozone: "I don't see a destabilisation of bank deposits across Europe. I don't see any impact for more than a few days in the market."

The European Central Bank board member, Joerg Asmussen, also said he did not think Cyprus's problems would spread to other eurozone countries: "I do believe that the situation of Cyprus and the Cypriot banking sector is indeed unique."

The movement in major government bond yields - the implied interest rate that countries pay to borrow money - was small - an indication that bond investors saw limited risks at the moment.

Cyprus was hardest hit, with its seven-year bond yield jumping by more than 1.5 percentage points to just over 10%.

Italian and Spanish government bond yields rose by far less - and after rising by more than 0.1 percentage points, 10-year yields for Italy were at 4.65%, while Spanish 10-year yields were at 4.9%.

Some see it as undermining the credibility of European authorities who, in other bailouts, such as in Spain, have demanded that it is the large financial institutions that lent money to the governments and banks which should incur losses when things go wrong, not depositors.

In addition, "the Cyprus package highlights the increasing reluctance of countries like Germany, Finland and the Netherlands to support weaker eurozone members", said Satyajit Das, an author and former banker.

Dipping
This is the first time the 17-nation eurozone has seen a country dip into people's savings to finance a bailout.


Under the one-off levy, bank customers with less than 100,000 euros would have to pay 6.75%, while those with more than 100,000 euros would pay 9.9%.

Depositors in Cypriot banks outside the country, including in Greece, are unaffected by the levy.

But the plan is yet to be finalised and Cyprus's leaders have said they want to ensure protection for small investors.

Meanwhile, an emergency session of the Cypriot parliament has been postponed until Tuesday.

Also, Germany must approve the plan, but is not due to vote until next month.

Following eurozone finance ministers' negotiations last week, Cyprus became the fifth euro-area country to get a bailout to save its banks, which suffered significant losses because of their exposure to Greek debt.


UPDATE FROM THE GUARDIAN

Eurogroup gives Cyprus 'leeway' over savings tax

Breaking: Eurozone finance ministers have ended their video conference call on the Cyprus crisis.

And the big news is that the Eurogroup have apparently agreed to give Cyprus more flexibility on its bank levy. As long as it hits the €5.8bn target. And it appears that tomorrow's vote in parliament still goes ahead.

That's according to a source in the Greek finance minister, interviewed by Reuters.

Here are the latest snaps off the Reuters terminal:

EUROGROUP MEETING ON CYPRUS OVER, EUROGROUP GIVES CYPRUS MORE FLEXIBILITY ON BANK LEVY - GREEK FINMIN SOURCE

EUROGROUP TO SAY THAT CYPRUS SHOULD SAFEGUARD PROTECTION OF DEPOSITORS BELOW 100,000 EUROS - GREEK FINMIN SOURCE

CYPRUS PARLIAMENTARY VOTE ON BANK LEVY TO TAKE PLACE ON TUESDAY, AS PLANNED - GREEK FIN MIN SOURCE

CYPRUS SHOULD STILL RAISE 5.8 BILLION EUROS FROM THE BANK LEVY AS PLANNED - GREEK FINANCE MINISTRY SOURCE



'Cyprus levy tipping point for Eurozone between safety & panic'


Cyprus may make its citizens shoulder a 12.5-percent crisis tax on savings larger than €100,000, while reducing the tax for smaller deposits to 3 percent, Reuters reported. Panic ensued as Cypriots rushed to withdraw savings.

Global markets analyst Patrick Young says that EU's proposition to encroach on personal as well as foreign bank deposits deeply endangers the banking system.








Blame game: France, Germany insist savings levy was Cyprus's decision
As outrage mounts over an unprecedented bank tax in Cyprus, Europe's biggest economies, France and Germany, have put the blame for the bank levy on Cyprus. Banks all over the country, meanwhile, will remain shut pending parliament’s decision.


RT,
18 March, 2013

Both France and Germany, along with the European Central Bank (ECB), have hastened to emphasize that they were not behind the decision to impose a tax on savings in Cyprus. A move which has impacted the markets worldwide.

A debate in the Cypriot parliament Monday yielded no result on whether the country should approve the controversial levy. Opposition parties are against the move, leaving the government without a majority in the upcoming vote, which has been delayed until Tuesday.

The new tax, which is now being considered by the Cypriot government, would make its citizens shoulder a 12.5-percent crisis tax on savings larger than €100,000, with a tax of 3 percent on smaller deposits.

The original agreement suggested 9.9 and 6.7 per cent levies on deposits above and below the €100,000 threshold respectively.

The move comes after European finance ministers demanded Cyprus seize a significant portion of all deposits in the country’s banks in order to secure a €10 billion bailout.

And while Cyprus says Brussels gave it no choice but to accept a painful tax on the country’s bank deposits in return for international aid, Germany and France say it’s not their fault.

"How the country makes its contribution, how it makes the payments, is up to the Cyprus government," Germany’s government spokesman Steffen Seibert said. "Germany could have imagined a different plan but it is not our decision," he added.

Cypriots show their palms reading "No" during a protest against an EU bailout deal outside the parliament in Nicosia on March 18, 2013. (AFP Photo / Patrick Baz)

Protesters in Cyprus, who gathered outside the Parliament building in the capital Nicosia, to express their outrage over the bailout, have held up banners blaming Germany for the controversial bailout deal. “Merkel, you stole our life savings,” read one of the banners. The other – “Europe is for its people, not for Germany”.

The ECB from its side argued that the initiative was “the Cyprus government's adjustment programme, not the Troika's or any other government's,"

"If Cyprus's president wants to change something in the structure of the levy on bank deposits, that's in his hands. He must simply make sure that the financing is intact," ECB executive board member Joerg Asmussen said.

France backed Cyprus' “different distribution to better protect small deposits,” saying that its choice “respects the total amount of its contribution to the program, we have to listen to it and, for me, to hear it," France’s Finance Minister Pierre Moscovici told AFP.

The ECB opened the door to possible amendments to the EU bailout deal, arguing that as long as the financing was secure, it was up to the Cypriot government to decide how to raise it.

In Russia, whose citizens constitute a number of clients of Cyprus’ banks, President Vladimir Putin slammed the proposed tax on bank deposits as "unfair, unprofessional and dangerous."

The Russian Prime Minister Dmitry Medvedev was even harsher in his comments. “This looks like a forfeiture of other people’s money,” he told the RIA news agency, calling the decision strange and controversial.

Russian banks had around $12 billion deposited in Cypriot banks at the end of 2012, according to ratings agency Moody's.

Meanwhile, banks in Cyprus will remain closed on Tuesday and Wednesday until a decision by parliament is made.

A decree will be released shortly from the Finance Ministry to this effect,” Reuters reports, citing a government source.

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