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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