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Facing Bailout Tax, Cypriots Try to Get Cash Out of Banks Facing Bailout Tax, Cypriots Try to Get Cash Out of Banks
(about 13 hours later)
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ATHENS — In a move that could set off new fears of contagion across the euro zone, anxious depositors drained cash from automated teller machines in Cyprus on Saturday, hours after European officials in Brussels required that part of a new 10 billion euro bailout be paid for directly from the bank accounts of ordinary savers.ATHENS — In a move that could set off new fears of contagion across the euro zone, anxious depositors drained cash from automated teller machines in Cyprus on Saturday, hours after European officials in Brussels required that part of a new 10 billion euro bailout be paid for directly from the bank accounts of ordinary savers.
The move — a first in the three-year-old European financial crisis — raised questions about whether bank runs could be set off elsewhere in the euro zone. Jeroen Dijsselbloem, the president of the group of euro area ministers, declined early Saturday to rule out taxes on depositors in countries beyond Cyprus, although he said such a measure was not currently being considered.The move — a first in the three-year-old European financial crisis — raised questions about whether bank runs could be set off elsewhere in the euro zone. Jeroen Dijsselbloem, the president of the group of euro area ministers, declined early Saturday to rule out taxes on depositors in countries beyond Cyprus, although he said such a measure was not currently being considered.
Although banks placed withdrawal limits of 400 euros, or about $520, on A.T.M.’s, most had run out of cash by early evening. People around the country reacted with disbelief and anger.Although banks placed withdrawal limits of 400 euros, or about $520, on A.T.M.’s, most had run out of cash by early evening. People around the country reacted with disbelief and anger.
“This is a clear-cut robbery,” said Andreas Moyseos, a former electrician who is now a pensioner in Nicosia, the capital. Iliana Andreadakis, a book critic, added: “This issue doesn’t only affect the people’s deposits, but also the prospect of the Cyprus economy. The E.U. has diminished its credibility.”“This is a clear-cut robbery,” said Andreas Moyseos, a former electrician who is now a pensioner in Nicosia, the capital. Iliana Andreadakis, a book critic, added: “This issue doesn’t only affect the people’s deposits, but also the prospect of the Cyprus economy. The E.U. has diminished its credibility.”
In Nicosia, a crowd of around 150 demonstrators gathered in front of the presidential palace late in the afternoon after calls went out on social media to protest the abrupt decision, which came with almost no warning at the beginning of a three-day religious holiday on the island.In Nicosia, a crowd of around 150 demonstrators gathered in front of the presidential palace late in the afternoon after calls went out on social media to protest the abrupt decision, which came with almost no warning at the beginning of a three-day religious holiday on the island.
Under an emergency deal reached early Saturday in Brussels, a one-time tax of 9.9 percent is to be levied on Cypriot bank deposits of more than 100,000 euros effective Tuesday, hitting wealthy depositors — mostly Russians who have put vast sums into Cyprus’s banks in recent years. But even deposits under that amount are to be taxed at 6.75 percent, meaning that Cyprus’s creditors will be confiscating money directly from pensioners, workers and regular depositors to pay off the bailout tab.Under an emergency deal reached early Saturday in Brussels, a one-time tax of 9.9 percent is to be levied on Cypriot bank deposits of more than 100,000 euros effective Tuesday, hitting wealthy depositors — mostly Russians who have put vast sums into Cyprus’s banks in recent years. But even deposits under that amount are to be taxed at 6.75 percent, meaning that Cyprus’s creditors will be confiscating money directly from pensioners, workers and regular depositors to pay off the bailout tab.
Cyprus’s newly elected president, Nicos Anastasiades, said taxing depositors would allow Cyprus to avoid implementing harsher austerity measures, including pension cuts and tax increases, of the type that have wreaked havoc in neighboring Greece. That thinking appealed to some Cypriots, including Stala Georgoudi, 56. “A one-time thing would be better than worse measures,” she said. “Procrastinating and beating around the bush would be worse.”Cyprus’s newly elected president, Nicos Anastasiades, said taxing depositors would allow Cyprus to avoid implementing harsher austerity measures, including pension cuts and tax increases, of the type that have wreaked havoc in neighboring Greece. That thinking appealed to some Cypriots, including Stala Georgoudi, 56. “A one-time thing would be better than worse measures,” she said. “Procrastinating and beating around the bush would be worse.”
But Sharon Bowles, a British member of the European Parliament who is the head of the body’s influential Economic and Monetary Affairs Committee, said the accord amounted to a “grabbing of ordinary depositors’ money,” billed as a tax.But Sharon Bowles, a British member of the European Parliament who is the head of the body’s influential Economic and Monetary Affairs Committee, said the accord amounted to a “grabbing of ordinary depositors’ money,” billed as a tax.
“What the deal reflects is that being an unsecured or even secured depositor in euro-area banks is not as safe as it used to be,” said Jacob Kirkegaard, an economist and European specialist at the Peterson Institute for International Economics in Washington. “We are in a new world.”“What the deal reflects is that being an unsecured or even secured depositor in euro-area banks is not as safe as it used to be,” said Jacob Kirkegaard, an economist and European specialist at the Peterson Institute for International Economics in Washington. “We are in a new world.”
Cyprus had been a blip on the radar screen of Europe’s long-running debt crisis — until now.Cyprus had been a blip on the radar screen of Europe’s long-running debt crisis — until now.
Hobbled by a devastating banking crisis linked to a slump in Greece’s economy, where Cypriot banks made piles of loans that are now virtually worthless, Cyprus on Saturday became the fifth country in the euro union to receive a financial lifeline since Europe’s debt crisis broke out. As the euro zone’s smallest economy, Cyprus had hardly been considered the risk for the euro union that Greece, Ireland, Portugal or Spain were.Hobbled by a devastating banking crisis linked to a slump in Greece’s economy, where Cypriot banks made piles of loans that are now virtually worthless, Cyprus on Saturday became the fifth country in the euro union to receive a financial lifeline since Europe’s debt crisis broke out. As the euro zone’s smallest economy, Cyprus had hardly been considered the risk for the euro union that Greece, Ireland, Portugal or Spain were.
But the surprise policy by the International Monetary Fund, the European Central Bank and the European Commission is the first to take money directly from ordinary savers. In the bailout of Greece, holders of Greek bonds were forced to take losses, but depositors’ funds were not touched.But the surprise policy by the International Monetary Fund, the European Central Bank and the European Commission is the first to take money directly from ordinary savers. In the bailout of Greece, holders of Greek bonds were forced to take losses, but depositors’ funds were not touched.
Mr. Anastasiades, who was elected just a few weeks ago, called the decision “painful” but said it would lead to “the historic and definitive rescue of our economy.” He said the consequences of rejecting the deal would be the collapse of at least one of Cyprus’s major banks, amid widespread weakness in the country’s banking system.Mr. Anastasiades, who was elected just a few weeks ago, called the decision “painful” but said it would lead to “the historic and definitive rescue of our economy.” He said the consequences of rejecting the deal would be the collapse of at least one of Cyprus’s major banks, amid widespread weakness in the country’s banking system.
Cypriot banks are loaded up on bad loans made to Greek companies and individuals, which have turned sour at an alarming rate as Greece deals with the fourth year of a devastating economic and financial crisis.Cypriot banks are loaded up on bad loans made to Greek companies and individuals, which have turned sour at an alarming rate as Greece deals with the fourth year of a devastating economic and financial crisis.
“I’m not surprised that people are trying to get their money out in Cyprus; that is entirely to be expected,” Mr. Kirkegaard said. “They wake up Saturday morning and are told on the radio their bank deposits are at risk.”“I’m not surprised that people are trying to get their money out in Cyprus; that is entirely to be expected,” Mr. Kirkegaard said. “They wake up Saturday morning and are told on the radio their bank deposits are at risk.”
The deposit tax, which is expected to raise 5.8 billion euros, or $7.6 billion, appeared aimed at gleaning large amounts of cash from the accounts of wealthy Russians, who have poured deposits into Cypriot banks in the last several years. Chancellor Angela Merkel of Germany, who faces a pivotal election in September, has been particularly concerned that most of the bailout money could wind up in the hands of Russian gangsters and oligarchs, a fear backed by a recent report by Germany’s intelligence agency. Officials in Cyprus have said there is no proof the Russian cash is of questionable origin. They insist they cracked down on money laundering before joining the European Union.The deposit tax, which is expected to raise 5.8 billion euros, or $7.6 billion, appeared aimed at gleaning large amounts of cash from the accounts of wealthy Russians, who have poured deposits into Cypriot banks in the last several years. Chancellor Angela Merkel of Germany, who faces a pivotal election in September, has been particularly concerned that most of the bailout money could wind up in the hands of Russian gangsters and oligarchs, a fear backed by a recent report by Germany’s intelligence agency. Officials in Cyprus have said there is no proof the Russian cash is of questionable origin. They insist they cracked down on money laundering before joining the European Union.
Because Russian depositors would have to share the burden, it would ultimately relieve Cyprus from its debt load by allowing a one-time payment upfront rather than deeper cuts to salaries and pensions or additional privatizations in the future.Because Russian depositors would have to share the burden, it would ultimately relieve Cyprus from its debt load by allowing a one-time payment upfront rather than deeper cuts to salaries and pensions or additional privatizations in the future.
Mr. Kirkegaard said he was surprised that Cyprus’s creditors had decided to go after smaller depositors, but that part of the rationale might have been avoiding putting too much pressure on businesses, which hold a large share of the high-value accounts.Mr. Kirkegaard said he was surprised that Cyprus’s creditors had decided to go after smaller depositors, but that part of the rationale might have been avoiding putting too much pressure on businesses, which hold a large share of the high-value accounts.
The Cyprus Parliament must vote on the measure, and it was planning an emergency session on Sunday. Given the stunned reaction, it was not certain to pass. Nicholas Papadopoulos, the head of Parliament’s financial affairs committee, said the decision was “much worse than what we expected and contrary to what the government was assuring us, right up until last night,” Reuters reported.The Cyprus Parliament must vote on the measure, and it was planning an emergency session on Sunday. Given the stunned reaction, it was not certain to pass. Nicholas Papadopoulos, the head of Parliament’s financial affairs committee, said the decision was “much worse than what we expected and contrary to what the government was assuring us, right up until last night,” Reuters reported.

Reporting was contributed by Nicholas Kulish from Berlin, Landon Thomas Jr. from London, James Kanter from Brussels, and Andreas Riris from Nicosia, Cyprus.

Reporting was contributed by Nicholas Kulish from Berlin, Landon Thomas Jr. from London, James Kanter from Brussels, and Andreas Riris from Nicosia, Cyprus.