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Cyprus's Lawmakers Reject Bank Deposit Tax, Tangling Bailout Negotiations

By Joanna Kakissis | NPR
Tuesday, March 19, 2013

Copyright 2018 NPR. To see more, visit http://www.npr.org/.

In Cyprus, the parliament is wrestling with a European Union-imposed plan that would seize at least 10 percent of the bank savings of wealthy people and possibly 7 percent from everyone else, to help defray the cost of bailing out Cypriot banks. On Tuesday, lawmakers voted against a modified version of the plan.



You're listening to ALL THINGS CONSIDERED from NPR News.

Now to the story of the financial crisis in the tiny island-nation of Cyprus. To ease its banking problems, Cyprus asked the EU and the International Monetary Fund for a bailout. This past weekend, those institutions offered a bailout but under strict conditions. In effect, Cyprus would have to impose a tax on bank deposits in the country, which draws money not only from Cypriots but from wealthy foreigners, especially Russians. Well, today, the Cypriot parliament said no thanks to the bailout. Joanna Kakissis tells us more.

JOANNA KAKISSIS, BYLINE: It was clear even before debate began in parliament that lawmakers would reject the tax on deposits. Lawmakers in the governing party said they would abstain from the vote even after their leader, President Nicos Anastassiades, said the government would not tax people who had less than $26,000 in the bank. But members of parliament said they could not support a tax that some have called legalized robbery. Here's parliament speaker Yiannakis Omirou.

YIANNAKIS OMIROU: (Through Translator) They don't understand that no one, whether he is a Cypriot or a Russian, is going to leave money in our banks if we approve this law.

KAKISSIS: Russians have billions in Cypriot banks and also create jobs here, says Marina Snigireva, who works for one of the many Russian-owned offshore companies in Cyprus.

MARINA SNIGIREVA: We give a lot of, how to say, working places, you know, for Cypriots as well, which is good for them because imagine if one day Russian business disappear from here. I guess it would be a very big tragedy for Cypriots as well.

KAKISSIS: But the Germans say the real tragedy is that the Russians use Cyprus to conceal money and evade taxes. Germany is providing most of the eurozone bailout loan.

JOACHIM PORES: (Foreign language spoken)

KAKISSIS: German lawmaker Joachim Pores said recently that the economy of Cyprus is based on money laundering. The Germans don't want to bail out Russian oligarchs, and the Cypriots don't want to lose Russian investors, so the tax on deposits would have punished both Russian billionaires as well as many Cypriots. If people's savings can be raided in Cyprus, they can be raided anywhere, says Alexander Apostolides, an economist in the Cypriot capital, Nicosia.

ALEXANDER APOSTOLIDES: The confidence in the banking system was eliminated the moment that this was announced. If I was a Spanish depositor or an Italian depositor or even a German depositor, I would be afraid.

KAKISSIS: Cypriots are also afraid about what's going to happen next. Because parliament rejected the tax, the country can't access $13 billion in bailout loans that it needs to rescue its banks and pay pensions and public salaries. The European Central Bank says it will provide limited liquidity to help Cypriot banks when they reopen on Thursday, but there are still fears of a bank run.

Meanwhile, those who question austerity policies say they're glad Cyprus stood up to the German-led eurozone. They say it's high time someone did. It just happened to be a tiny Mediterranean island nation that until this week many people could not find on a map. For NPR News, I'm Joanna Kakissis in Athens.



This is ALL THINGS CONSIDERED from NPR News. Transcript provided by NPR, Copyright NPR.

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