Cyprus people ‘shocked’ with bailout terms
According to European papers, Cypriots and Cyprus-based expats are shocked over a demand to tax deposits in Cypriot banks. The EuroGroup believes this can annually raise up to 5.8bln euros for the Cypriot treasury.
Officials say many of the bank accounts have already been frozen.
The European Union hopes that Russia will take part in the effort to prevent Cyprus from defaulting by easing the terms of previous loans, rather than granting fresh loans. This came in a statement by the European Commissioner for Economic and Monetary Affairs, Olli Rehn, following a meeting of the European Group.
This will make it possible for Nicosia to release some extra funds to ensure financial stabilization, he said. Meanwhile, the Cypriot Finance Minister, Mikhalis Sarris, is due to arrive in Moscow on Wednesday to take up Russia’s additional aid to Cyprus.
It is held at the moment that Moscow may prolong the loan pay-off term for Nicosia. The 2.5 billion euro loan was granted in 2011 for five years. Moscow could also lower the current interest rate on the loan.
Russia's government is ready to ease the conditions of a 2.5 billion euro loan it made to Cyprus by extending the 5-year maturity beyond 2016 and by cutting the 4.5 percent interest, EU Economic and Monetary Affairs Commissioner Olli Rehn said.
"My understanding is that the Russian government is ready to make a contribution with an extension of the loan and a reduction of the interest rate," Rehn said on Saturday.
A "stability levy" that will hit all Cypriot bank depositors, resident and non-resident, is expected to raise 5.8 billion euros as part of a bailout deal agreed by the eurozone and the IMF early Saturday, the Eurogroup head said.
The chairman of the Eurogroup of finance ministers, Jeroen Dijsselbloem of the Netherlands, gave this figure under heavy questioning over the levy, which will see deposits of more than 100,000 euros ($130,000) in Cypriot banks hit with a 9.9 percent one-off tax, and even small savings losing 6.75 percent.
Euro zone ministers struck a deal on Saturday to hand
After 10 hours of talks through the night, finance ministers from the currency bloc agreed to a package, smaller than initially expected, mainly needed to recapitalise the Mediterranean island's banks which were hit hard by a sovereign debt restructuring in Greece last year.
The size of the loan has been cut from the originally planned 17 or 18 billion euros, which is about the size of Cyprus’s annual GDP.
"The Eurogroup was able to reach a political agreement with the Cypriot authorities on the cornerstones of this agreement," Dutch Finance Minister Jeroen Dijsselbloem, who chairs the finance ministers' group, told reporters.
"Financial assistance to Cyprus is warranted to safeguard financial stability to the island and to the euro zone as a whole."
Under the emergency lending programme, Cyprus agreed to increase its nominal corporate tax rate by 2.5 percentage points to 12.5 percent, a senior euro zone official told Reuters.
The anti-crisis aid to Cyprus comprises a one-off tax on bank deposits. A tax will, besides, be imposed on income from bank deposits. So, the end agreement ignores the resistance of Cyprus and provides for local bank depositors’ involvement in the programme of recovery of Cyprus’s financial system.
Central Bank Governor Panicos Demetriades has warned of a “systemic risk” that a lack of funding for Cyprus could pose to the entire eurozone.
In a Thursday interview with Reuters, Mr. Demetriades said a new wave of debt crisis was the biggest risk for the eurozone economy.
He said CB negotiations were still underway but urged EU partners to conclude Cyprus' bailout this month, saying “periphery is the biggest risk, and at the minute it is Cyprus.”
The CB chief assured journalists that the zone was at the end of its quest toward balanced budgets and should now concentrate on structural economic reforms.
Voice of Russia, TASS, RIA, Reuters, AFP