Business Irish

Friday 23 February 2018

Taoiseach moves to calm fears over crisis in Cyprus

Anger on streets as savers blame Merkel for bank grab

Protesters raise their open palms showing the word
Protesters raise their open palms showing the word "No" during an anti-bailout rally outside the parliament in Nicosia

Colm Kelpie and Fionnan Sheahan Washington DC

THE Government has moved to calm fears over any threat of a tax on deposits in Irish banks and said there is no risk of contagion spreading from Cyprus to the rest of Europe.

Taoiseach Enda Kenny commented just hours before the Cypriot parliament was expected to vote on a controversial bailout plan which – if passed – would impose a levy on bank deposits.

However, it was signalled last night that those with less than €100,000 may be protected.

Mr Kenny said there was no need for Irish bank depositors to be worried about their savings as a result of the proposed tax on savings in Cyprus.

A No vote could force Cyprus to default, which would plunge the eurozone into further crisis.

The one-off levy on deposits in Cypriot banks was a departure from other bailouts and has sparked fears that deposits in other European countries – even those not in a bailout – could be at risk.

That fear was compounded yesterday when credit ratings agency Moody's warned that it was a significant step towards limiting or removing safeguards for depositors across Europe.

However, speaking in Washington, Mr Kenny said Cyprus was a "different and unique case".

"Clearly, the Cypriot parliament now have got to assess and make their judgment in their own way on the deal that has been put through," he said.

The Department of Finance also stressed that there were no implications for any other EU state. However, stock markets slumped yesterday – with Ireland and Iceland the only two states in western Europe to buck the trend.

Finance Minister Michael Noonan, who has travelled to Rome to represent the Government at Pope Francis's inauguration, took part in a conference call with eurozone finance ministers yesterday evening.

In a statement, the Eurogroup said it "continues to be of the view that small depositors should be treated differently from large depositors and reaffirms the importance of fully guaranteeing deposits below €100,000".

It said the Cypriot authorities could alter the levy imposed on smaller savers as long as they secured the €5.8bn target set by the troika.

Mr Noonan's spokesman stressed that there would be no impact on Irish depositors.

"There's nothing for us to add to the debate other than saying that there's no impact here in Ireland and that is the position," he said.

Enterprise Minister Richard Bruton said the Cypriot bailout was designed to avoid contagion elsewhere in the eurozone.

He said the final details of the rescue had yet to be decided, and there was "flexibility" around the deal.

Under the €10bn bailout agreement, announced on Saturday, depositors must pay a one-off levy. Anyone with deposits of up to €100,000 would be hit with a 6.75pc tax, while those above that face a 9.9pc levy.

However, reports from Brussels last night suggested smaller depositors may be protected, with a possible 15.6pc levy on amounts over €100,000 and no tax on deposits below that amount.

The recently elected Cypriot president, Nicos Anastasiades (right), and his government were working to ease the terms of the deal ahead of today's vote – potentially tilting the bulk of the burden on those with more than €100,000 to avoid hitting ordinary Cypriot savers.

A source said authorities hoped to cut the tax to 3pc for deposits under €100 000. The rate for deposits above that would be increased to 12.5pc from 9.9pc.

A protest took place outside the parliament in Cypriot capital Nicosia yesterday, with some blaming Germany under Chancellor Angela Merkel for raiding their savings.

With a large number of Russian deposits in Cypriot banks, a spokesman for Russian President Vladimir Putin said imposing the tax would be "unfair, unprofessional and dangerous".

Banks in Cyprus are to remain closed until Thursday and the vote was postponed until today.

While demanding that the tax raise the targeted €5.8bn, European officials said easing the cost to smaller savers was up to Cyprus.

A Cypriot source said the introduction of a tax-free threshold for smaller bank deposits was not yet agreed.

Locals emptied cash machines over the weekend as across Europe investors feared a precedent had been set.

Moody's said the decision to target depositors was a major departure from previous bailouts and warned it could have negative implications for European bank ratings.


Fianna Fail's finance spokesman, Michael McGrath, said that burning depositors in Cyprus would set a dangerous precedent across the eurozone and make a mockery of plans for an EU-wide banking union.

"The imposition of a so-called 'tax' of up to 9.9pc on deposits as part of the Cypriot bailout deal sends a clear signal that ordinary depositors are now in the firing line," Mr McGrath said.

He claimed the move would undermine investor confidence.

"Irish depositors will legitimately ask how safe their money is if it transpires that Irish banks need more money to absorb losses on mortgages and business loans," he said.

Mr Noonan's spokesman said, however, that there had been no suggestion by the Eurogroup, the ECB, EC Commission or IMF that the tax would apply in any other member state.

"This is part of a package of specific measures to address a complex and unique situation in Cyprus," he said.

Irish Independent

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