Deposit Accounts in Cyprus hit with €5.8 Billion Levy

If you think our Property Tax is bad – wait until you hear what European finance ministers have done to savings accounts in Cyprus.

The EU ministers have agreed a  €10 billion  bailout for the banks in Cyprus  which includes all Cypriot bank customers handing over at least 6.75% of their savings.

Accounts with savings of under €100,000 will be reduced by a  one-off levy of 6.75%, which rises to 9.9% for anyone with over €100,000

So someone with €50,000 savings will pay €3375 and someone with €500,000 will pay €49,500

An estimated  total of €6 billion will be taken from customers bank accounts to go towards the bailout. The levy  will come into force on Tuesday March 19th , after a bank holiday on Monday. Cypriot finance minister Michalis Sarris said his government had already moved to ensure deposit holders could not make large withdrawals electronically before Tuesday’s opening.

This grabbing of ordinary depositors’ money is being treated as  a tax, in order to  to try and circumvent the EU’s deposit guarantee laws.

This could have an effect on bank deposits all over the Eurozone. There will undoubtedly be promises that this is the only country in the euro area that will write down deposits  – but will those promises be believed or delivered ?

The Cypriot  finance minister said on March 1st  , when asked about the possibility of  giving deposit accounts a haircut ,  – “Really and categorically – and this doesn’t only apply in the case of Cyprus but for the world over and the euro zone – there really couldn’t be a more stupid idea”.

It is estimated that about 40% of  the deposits in Cyprus are held by British or  Russian residents.  The only good news is that depositors hit by the levy will be granted shares in their banks of equivalent value to their losses.

Bank of Cyprus UK said on their website that  there is no effect on deposits with Bank of Cyprus UK Limited which is a UK bank.    The UK financial services authority forced the bank to split it’s UK operations from Cyprus in Jine 2012 because of concerns about deposit safety.

Could this be bad news for the Euro ?

Karl Whelan writing in Forbes said  “Over the longer-term, I doubt if financial stability in the euro area (and the continued existence of the euro) is compatible with a policy framework that doesn’t protect the savings of ordinary depositors.”

There was similar talk in early 2012 about Possible Collapse of the Euro – and it didn’t happen. But maybe this could be worse?

More here about Euro Exchange Rates  and Opening Sterling Bank  Accounts