The proposed levy will have a severe impact on UK expatriates holding deposits in Cypriot banks. However, depositors in the overseas arms of Cypriot banks will not be affected. Bank of Cyprus UK and Laiki Bank UK both said there would be no impact.
UK Chancellor George Osborne said the UK would compensate any government employees and military personnel whose bank accounts were affected. The levy runs counter to widely agreed principles that emerged in the post financial crisis environment that the savings of ordinary people would be protected in any rescue package of a failing financial institution.
The €10bn ($13bn; £8.6bn) bailout agreed by the EU and IMF demands that all bank customers pay a one-off levy and has led to heavy cash withdrawals.
Under the bailout’s terms, people in Cyprus with less than €100,000 in their accounts would have to pay a one-off tax of 6.75%. Those with sums over that threshold would pay 9.9%. Depositors will be compensated with the equivalent amount in shares in their banks, and Mr Anastasiades promised that those who kept deposits in Cypriot banks for the next two years would be given bonds linked to revenues from natural gas.
There was some confusion over the origin of the terms of the bailout. German finance minister Wolfgang Schaeuble said he and the International Monetary Fund had been in favour of "respecting the deposit guarantee for accounts up to 100,000" euros.
He said it was the Cypriot government, the European Commission and the European Central Bank that had decided on the levy terms and that "they now must explain this to the Cypriot people".
The proposed levy faces strong opposition especially from Moscow. According to the Moody’s rating agncy at the end of 2012 Russian banks had placed $12bn in Cypriot banks, with corporate deposits at $19bn. So Russian corporate and individual investors could lose up to $2bn.
Negotiations are continuing and one of the options under consideration is a lowering of the levy on smaller savings to 3%, while raising it on the larger depositors to 12.5%.
The outcome of any vote in parliament is by no means certain as President Nicos Anastasiades’ Democratic Rally party has 20 seats in the 56-member assembly and needs other parties’ support to ratify the deal.
