Eurozone: Cyprus tax should be cut for small depositors

March 19, 2013 at 12:00a.m.

McClatchy Newspapers

BRUSSELS

Eurozone finance ministers insisted Monday that a controversial bailout- dictated depositor tax in Cyprus must yield $7.5 billion but urged protection for smaller savers as pressure mounts to amend the levy.

For the first time in the eurozone crisis, European and IMF creditors have agreed with a cash-strapped EU government to force ordinary depositors to help pay as part of a bailout deal.

The new Cypriot government, which signed the agreement, has faced the anger of account holders on the Mediterranean island, where banks were to stay closed until Thursday to prevent a bank run.

The surprise move hit financial markets Monday, driving down the euro and raising fears of a loss in confidence in banks in Cyprus and elsewhere in the 17-nation eurozone.

As part of the $12.9 billion bailout, deposit holders with up to roughly $129,000 would pay a 6.75 percent levy, while wealthier customers would be hit with a 9.9 percent tax.

After a special conference call late Monday, the currency bloc’s ministers defended the agreed reforms as “the best guarantee for a more prosperous future for Cyprus and its citizens, through a viable financial sector, sound public finances and sustainable economic growth.”

“The stability levy on deposits is a one-off measure. ... In the absence of this measure, Cyprus would have faced scenarios that would have left deposit holders significantly worse off,” the president of their Eurogroup panel, Jeroen Dijsselbloem, said in a statement.

He said Cypriot authorities can introduce the tax more progressively, provided that it yields the same revenue, but offered no details.

“The Eurogroup continues to be of the view that small depositors [in Cyprus] should be treated differently from large depositors and reaffirms the importance of fully guaranteeing deposits below 100,000 euros [$129,000],” Dijsselbloem said.

The European Union already has moved toward a deposit-guarantee scheme for bank-account holders with up to 100,000 euros, but only in the event of bank failure.

The bank-deposit levy has sparked public anger and roiled financial markets.