In Cyprus, bank depositors reamed by EU, IMF in bailout deal
How would you feel if your bank, through no fault of yours, needed a bailout and to help pay for it, the government demanded you give up 10% of your deposits?
Yeah, I thought so.
Depositors in Cypriot banks will be hit with a one-off tax on their savings, as part of a €10 billion ($12.96 billion) bailout for the Mediterranean island from the euro zone and the International Monetary Fund.
The deal, announced early Saturday, marks the first time in the euro zone's five-year-old financial crisis that depositors in bloc's banks will lose money. Accounts with more than €100,000 will be taxed at 9.9%, those with less at 6.75%, raising an expected €5.8 billion for the near-bankrupt nation.
"This decision should not be compared to the ideal, but to the very real possibility that much more money could have been lost in bankruptcy of the banking system or indeed of the country," Cypriot Finance Minister Michalis Sarris told reporters, looking strained after 10 hours of often-fraught negotiations.
Mr. Sarris said the Cypriot Parliament would adopt the taxes over the weekend and the money would be extracted from accounts before banks take up business Tuesday. Monday is a public holiday.
"We have taken immediate measures so that electronic transfers cannot take effect before banks reopen on Tuesday," said the minister, who took office just two weeks ago.
If you're a Cypriot depositer, your money is well and truly trapped by the government - or at least most of it. There are still ATM machines, most of which are rapidly running out of cash:
At one cashpoint in the capital Nicosia, a pensioner couple said they had visited several automatic teller machines without success. "We are trying to pull as much as we can," one told Reuters, reaching for a wallet containing four debit cards.
"I'm extremely angry. I worked years and years to get it together and now I am losing it on the say-so of the Dutch and the Germans," said British-Cypriot Andy Georgiou, 54, who returned to Cyprus in mid-2012 with his savings.
"They call Sicily the island of the mafia. It's not Sicily, it's Cyprus. This is theft, pure and simple," said a pensioner.
The vote on this catastrophic measure won't happen until Monday. The government doesn't have the votes in Parliament to pass it today and may never have them if you listen to the Cypriot people.
No doubt citizens in Spain, Italy, Greece, and probably France will start thinking very seriously about putting their cash somewhere safe from the grasping hands of government. The unprecedented EU action of hitting depositors may have reignited the financial crisis as markets will take note and make adjustments accordingly.