Eurozone finance ministers presented a new rescue plan for Cyprus. What they offer is freezing all the accounts opened at Cyprus Popular Bank and Bank of Cyprus, the country’s two largest banks, and then split the deposits into “good” and “bad” banks. The deposits up to 100,000 euros will be transferred to “good bank” and will not be subject to any taxes. The rest of deposits will be moved to “bad banks” only to remain frozen. Moreover, there will be a tax on accounts with less than 100,000 euros which is meant to be a sort of an oxygen mask for choking Greek banks. As Bloomberg informs, the holders of big deposits will face 40% losses.
It is no wonder the decision to evade default through tweaking with deposits resonated across entire Cyprus. But foreign investors proved to be even more emphatic about it than the locals. The Cypriot accounts of Germans and Russians are going to take the most severe dent.
The authorities of Cyprus had to resort to such harsh measures after the ECB announced it would stop providing emergency liquidity assistance to Greek banks unless the bailout plan were accepted until March 25. In other words, Cypriot banks might simply find themselves deprived of finance.
The previous Cyprus rescue plan had been based on a one-time tax on all bank accounts. The plan had offered to impose a 6.75% levy on deposits up to 100,000 euros and a 9.9% on the rest of deposits. Such a scenario had been thought to yield 5.8 billion euros. Moreover, Cyprus would also get additional 10 billion euros from the IMF and EU. However, the Cypriot deputies nixed this plan and turned to Russia for help. Unfortunately, Cyprus-Russia talks ended in a fiasco.
