Last Updated : 18 March 2013 at 12:50 IST
Cyprus has sprung a terrible surprise!
In return for a bailout to the tune of 10 billion Euros from lenders consisting of IMF, Germany and others, Cyprus Parliament is about to vote on a bill that would levy 6.75% on deposits below 100,000 Euros and 9.9% on deposits above that figure, on depositors Monday.
This means, if the 56 member Parliament of Cyprus votes the said bill into law, a Cypriot having deposits of 1,00,000 Euros would lose 6750 Euros in a one-time levy. They would, in return, get shares of the banks in which they have deposited money.
The fear is prevalent that the said 'bail-in' would trigger bank runs across the weaker economies of Europe although authorities have said that this is a stand-alone case. The bank runs have not been witnessed in Cyprus as its is a bank holiday Monday! Meanwhile electronic transactions have been banned and reports suggest that ATMs have been flushed clean.
“Of course there would be panic and unofficial reports suggest that deposit withdrawals have already started in Europe. The thing is that the Cyprus panic would trigger a number of other unpredictable panic-stricken scenarios.” said Martin Patrick, an economist from South India. Gold may gain as a result and silver may follow gold.
Meanwhile, President Nicos Anastasiades of Cyprus has said the alternative was "disorderly bankruptcy" and this deposit levy could be the “least painful option” before the Cypriots.
However, there exists doubts if he would be able to muster enough support from his fellow MP s and vote the bill into law.
The Russian connection
Russian oligarchs who have deposited large sums of money in Cyprus seem to be the most nervous.
There are reports that by asking Cyprus to levy deposits, Germany is mainly targeting money laundering carried out by Russian businessmen in Cyprus. The allegations of money laundering in Cyprus have been vehemently denied by Cypriot President.
“Confidence in Cyprus as a safe place to deposit money is going to be reduced to zero,” Anatoly Aksakov of the Russian association of regional banks told Interfax news agency.
“Russians have lost up to €3.5 billion in one day,” an editorial on the website of the Russian edition ofForbes magazine read. “The news of a 10% tax on deposits in Cypriot banks has sown panic among the richest Russian businessmen.”
Deposits from Russia amount to €25bn or one third of total bank deposits in Cyprus.
The IMF and Germany in addition to wanting to force losses on bank depositors to help reduce the size of the bailout also aim to make the island’s debt sustainable, The Financial Times reported.
Bolt from the past
"Before the SPD (Social Democratic Party, Germany)can approve loan assistance for Cyprus, the country's business model must be addressed," SPD budget expert Carsten Schneider said to Spiegel Online November last year. "We can't use German taxpayers' money to guarantee deposits of illegal Russian money in Cypriot banks." he added.
Now, that sums it up well. Cyprus is a tax haven and with lax compliance laws has become an ideal place to carry out money laundering.
As Wolfgang Schäuble, Germany’s finance minister, said in an interview published last weekend: ”We need to find out if the regulations just exist on paper, or are really being implemented (in Cyprus).”
Timing
Chances are less that the depositors in Eurozone nations, especially, the nations in the peripheries like Italy and Spain would take the Cyprus measure for a stand-alone case. They may fear that—despite assuming that it is communicated well—Cyprus would set a precedent and their own banks would rob them off their money.
They may even feel that the measures against the alleged Russian money laundering may be a wolf in sheep's clothing, a pretext simply to steal money from depositors after setting a precedent in Cyprus.
Otherwise, why small scale depositors in Cyprus are targeted?
No comments:
Post a Comment