Skip to comments.Shock in Cyprus as bailout brings bank account haircut
Posted on 03/16/2013 8:04:24 AM PDT by DeaconBenjamin
The Eurogroup reached on Friday night an unprecedented decision for bailing out Cyprus that dictates a haircut on all bank accounts on the islands banks with immediate effect, while cash withdrawals are not allowed for the time being, generating unrest.
Along with loans adding up to 10 billion euros from the European Support Mechanism, Cyprus will have to find another 7-7.5 billion euros from privatizations and from a 6.75 percent one-off haircut on all bank accounts with a balance up to 100,000 euros, rising to 9.9 percent on accounts exceeding 100,000 euros.
Already bank customers are gathering outside major and cooperative banks, Skai television reported on Saturday morning, as angry depositors demand their money.
Depositors will get shares of the banks they are clients of in return for the capital lost, of the same value as the haircut their accounts have suffered.
This is estimated to fetch some 6 billion euros to the state, bridging most of the gap between the 10 billion euros the ESM is offering to Cyprus and Nicosias requirements of an estimated 17 billion.
This is the first time in the eurozone that a levy has been imposed not on the interest of bank accounts but on the capital itself. In addition to that there is a levy on interest, too, and an increase in the 10 percent corporate tax that has been one of the main driving forces behind Cypruss financial progress after the 1974 Turkish invasion, generating growth by attracting foreign direct investment.
Notably, the account haircut does not affect bank accounts in Cypriot bank branches based in Greece, according to sources from the Greek Finance Ministry.
Tax on interest will amount to between 20 and 25 percent.
Changes will have to be ratified by the House of Representatives, the republics parliament within the weekend, while an emergency cabinet meeting is taking place on Saturday morning in Nicosia to assess the situation.
Finance Minister Michalis Sarris has postponed his official visit by two days and will now go to Moscow on Wednesday.
Cyprus state broadcaster CyBC reported on Saturday that German Finance Minister actually entered the Eurogroup meeting on Friday proposing a 40 percent haircut on Cypriot bank accounts. Sarris stated on Saturday that this had also been the proposal of the International Monetary Fund.
Sarris stated in Brussels that in view of the threat from the European Central Bank for banks in Cyprus to shut down and chaos to ensue, the increase in interest taxation and the haircut to bank accounts became necessary. A disorderly default, that was a genuine possibility, has been averted, he said.
It allows our economy to proceed decisively to a new beginning.
He also noted that after the dramatic meeting of the eurozone ministers a further slashing of salaries and pensions has been avoided and confidence in Cypriot economy is restored. He qualified the bailout funds loaned to Cyprus as sustainable and manageable and will not constitute an unbearable weight on the next generations. It spreads the load on this and on the following generations, he said.
IMF head Christine Lagarde said "the Fund has always said it would support a solution that is viable, and this agreement fulfills this condition, so my recommendation to our board will be for contributing in the funding of the package."
Opposition leader Antros Kyprianou, the General Secretary of leftist AKEL, accused the government of not consulting the other parties, saying that "the government bears full responsibility for developments in the economy as instead of choosing the road of consensus it has decided to go it alone."
I’m remembering when the Hildebeeste suggested the gov’t take over personal 401(k) funds ...
Coming soon to the US.
What is the response of depositors in Greece, Spain, and Italy?
yep, saw this and was not surprised ... http://www.freerepublic.com/focus/f-news/2996500/posts
Heh. I expect they've already moved their deposits to Finland [at least, I would have].
...cash withdrawals are not allowed for the time being... Along with loans adding up to 10 billion euros from the European Support Mechanism, Cyprus will have to find another 7-7.5 billion euros from privatizations and from a 6.75 percent one-off haircut on all bank accounts with a balance up to 100,000 euros, rising to 9.9 percent on accounts exceeding 100,000 euros... Depositors will get shares of the banks... in return for the capital lost... there is a levy on interest, too, and an increase in the 10 percent corporate tax... Tax on interest will amount to between 20 and 25 percent.The writer split up these ideas instead of presenting them in a coherent manner.
Joseph Stalin did this too.
The government was short on money, and Uncle Joe called in the head of the national bank. “How much money is in all your accounts?” he asked. When he was told the answer, he said “OK, hand over one-third of it to the government by the end of the day.” Simple. Every depositor in the land lost 1/3 of his savings instantly.
I don’t think the Russian banking system has recovered to this day.
Creative approach. We could do away with the FDIC, and when a bank fails, just give the depositors shares of stock in exchange for the money that they had on deposit. Wonder how many shares of WaMu it would have taken to buy a loaf of bread.
“...The government was short on money, and Uncle Joe called in the head of the national bank. How much money is in all your accounts? he asked. When he was told the answer, he said OK, hand over one-third of it to the government by the end of the day. Simple. Every depositor in the land lost 1/3 of his savings instantly....”
Communists disregard individual liberties and earned assets when it comes to their collective utopia as your post shows.
Communists are also all alike. The communists here in the USSA will do the same thing shortly. They will confiscate all private wealth to support the collective. Now you know why they want the guns. It’s not a criminal thing, it’s a control thing. They drape themselves in our flag while they stab us in the back every chance they get.
As for depositors in Greece, Italy, Ireland, and Spain, might be an opportune moment to find alternative arrangements starting this instant for their finances that exclude any bank based in their nation. To me, this seems like a test run. Though...
European Union Economic and Monetary Commissioner Olli Rehn said there wont be a repeat of the tax on bank deposits that was imposed as part of Cypruss aid program.
Asked whether a future EU-mandated bank levy can be categorically ruled out, Rehn said that it can and there is no concrete case where it should be considered. -- ekathimerini.com
The statement had to be said, of course, that this is a unique and special seizure of private funds for government public employee benefits debt. Just to prevent a run on the banks in other countries. I'd believe him, he is, of course, the same person who has said that haircuts on private deposits in banks will never happen. And that haircuts on government debt would set dangerous precedents that would be repeated.
I’m just curious as to whether anyone knows - is this affecting only the Greek part of the island or both parts?
Theoretically, Cyprus is united, but practically, there’s still a Greek half and a Turkish half. I was wondering as to whether this is affecting the folks on the Greek part of the island only, or both sectors?
Is this just cash deposits ?
What of brokerage accounts?
Privately held stock, bonds,,,
Gold coins buried in the back yard?
All the ships the Greeks own?
Coming soon to America - all those mutual funds and 401Ks are going to be “adjusted”.
He did much worse - 100% haircut. The scenario was: he told every farmer to hand over all his land and lifestock to a cooperative in exchange for a job there or go to a penal servitude camp (without the belongings, of course).
The method has a long-known name - 'confiscation'. There is an item on the theme, which uses a proper vocabulary.
“I love how the NYT characterizes it as a tax on the accounts”
Sound familiar everyone? Calling it a “Roberts.”
The 2014 coming as I have called it for years, begins the overt Extortion-Care, with global tapping in confiscation of the con recovery propaganda, by the MBS and global bond con securities,
CONs, all Anti-GlassSteagal CONS
CON-securities by cons.
Since most of the depositors are probably communists too, and don't mind taking their "fair share" from the other guy, this is at least one way to make sure everyone has some skin in the game.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.