NEWS,18.03.2013

Cyprus scrambles to rework bank tax

Cypriot ministers scrambled to revise a plan to seize money from bank deposits before a parliamentary vote on Tuesday that will either secure the island's financial rescue or threaten its default.The weekend announcement that Cyprus would impose a tax on bank accounts as part of a €10bn ($13bn) bailout by the European Union broke with previous practice that depositors' savings were sacrosanct. The euro and stock markets fell on concern the euro zone crisis was reigniting.Before Tuesday's vote, which is too close to call and would send reverberations across the currency zone if lost, the government was working to soften the blow to smaller savers by tilting more of the tax towards those with deposits greater than €100 000 ($130 000).The decision to target bank accounts stunned Cypriots, and police sealed off parliament in Nicosia as about 400 people staged a noisy protest outside, aggrieved that their small island of one million people should be singled out for such treatment.Angry demonstrators honked horns and waved placards reading "Hang the Banksters, Hands off People's Savings" and "Merkel go home and stay".Residents emptied cash machines over the weekend. The move also unnerved depositors in the euro zone's weaker economies and investors feared a precedent had been set that could reignite turmoil that the European Central Bank has calmed in recent months with its pledge to do whatever it takes to save the euro.The government says Cyprus has no choice but to accept the bailout with the levy on deposits, or go bankrupt.A Cypriot source told the introduction of a tax-free threshold for smaller bank deposits maybe up to €20 000 was under discussion but not yet agreed.The parliamentary speaker said debate on the bank levy would be delayed until 16:00 GMT on Tuesday to buy more time to build consensus. Banks, shut on Monday for a bank holiday, will remain closed on Tuesday and Wednesday to avert any panic.The eurozone has indicated that changes would be acceptable as long as the return of around €6bn is maintained."It is up to the government alone to decide if it wants to change the structure," European Central Bank policymaker Joerg Asmussen, who was pivotal in the weekend negotiations, told reporters in Berlin."The important thing is that the financial contribution of €5.8bn remains," he said. Eurozone finance ministers will hold a teleconference at 18:30 GMT on Monday.On the streets of Nicosia, ordinary Cypriots blamed European leaders, especially German Chancellor Angela Merkel."We are hugely disappointed by our so-called European partners. They have hurt the credibility of the banking system and the country's dignity," said Andreas Evangelou, 52, who said savings to put his son through university would be taken."They are treating us like guinea pigs," said Takis Georgiou, 49. "The government has lost its credibility in the eyes of the people. We'd be better off leaving the euro and returning to the pound, we don't want to end up like Greece."Protesters had inked the word "No" on the palms of their hands. "Europe is for its people and not for Germany," one placard said.On markets, the euro fell before recovering some losses. European stocks dropped two percent before recouping most of the lost ground denoting only modest levels of concern with banks taking the heaviest blow."The most important question is what would happen the following day if the bill isn't voted," Cyprus central bank governor Panicos Demetriades told parliament."What would certainly happen is that our two big banks would need to be consolidated. This doesn't mean that they would be completely destroyed. We will aim for this to happen in a completely orderly way."Brussels has emphasised that the measure is a one-off for a country that accounts for just 0.2% of European output.The worst fear is that savers in other, larger European countries become nervous and start withdrawing funds, although there was no immediate sign of that on Monday."If I were a saver, certainly in Spain or maybe Italy, I think I'd be looking askance at these measures and think this could yet happen to me," said Peter Dixon, global financial economist at Commerzbank.Cyprus's banking sector, which attracts money from Russians, dwarfs the size of its economy and has been severely hurt by exposure to its much larger neighbour Greece.Moscow is considering extending an existing €2.5bn loan to help bail the island out and said the fact it had not been consulted about the bailout could come into play."We will consider the issue of restructuring of the loan taking into account our (future) participation in the coordinated actions with the European Union to help Cyprus," Russian Finance Minister Anton Siluanov.President Vladimir Putin criticised the bank levy as setting a dangerous precedent. "Putin said that such a decision, should it be made, would be unfair, unprofessional and dangerous," Kremlin spokesperson Dmitry Peskov told reporters.In Serbia, where many saw Cyprus as a haven for money during the rule of Slobodan Milosevic, some with accounts there showed signs of concern.A Belgrade physician, who gave his name as Nebojsa, said he had €270 000 in a Cyprus account. He refused to identify himself as Serbs are not allowed to keep bank accounts abroad."I will go (to Cyprus) this week to collect money from a friend who is authorized to take care of my savings there," Nebojsa said. "He had already emptied my account as soon as rumours about the new tax started. I will stash my money it somewhere, I will probably get a safe deposit box."Approval in Cyprus's 56-member parliament is far from a given: no party has an absolute majority and three parties say outright they will not back the tax.A source close to the consultations  authorities were hoping to cut the tax to 3.0% from 6.7% for deposits under €100 000.Even that effectively rips up the protection savers thought they enjoyed on insured deposits up to that limit. The rate for deposits above that would then be jacked up to 12.5% from 9.9%.Cypriot President Nicos Anastasiades, a conservative elected just three weeks ago, said in a TV address that the tax was an alternative to a disorderly bankruptcy. It was painful, but "will eventually stabilise the economy and lead it to recovery".Savers who lost money would be compensated by shares in commercial banks, with equity returns guaranteed by future revenues expected from natural gas discoveries, Anastasiades said. But many legislators remain unconvinced."Essentially parliament is called to legalise a decision to rob depositors blind, against every written and unwritten law," said Yiannakis Omirou, speaker of parliament and head of EDEK, the small Socialist party. "We refuse to subscribe to this."

Cyprus MPs postpone bailout session

Cyprus's parliament has postponed until Tuesday a session to vote on a EU bailout deal that slaps a levy on all Cypriot bank savings, as negotiators scrambled to soften the blow for small deposit holders.Amid rising anger and jitters on global markets, MPs had been due to vote on the measure Monday but the speaker Yiannakis Omirou said the session would now take place at 6:00 pm (16:00 GMT) on Tuesday.He said the postponement was agreed by parliamentary party leaders after being briefed by President Nicos Anastasiades.The bailout deal, agreed at the weekend, sparked market turmoil on Monday and stoked fresh fears of debt crisis contagion.Cyprus Finance Minister Michalis Sarris and Central Bank governor Panicos Demetriades separately told lawmakers they were seeking a fresh formula that would exempt smalltime bank depositors from the unprecedented levy.They added they were looking to see a tax-free threshold for savings up to €100 000, but that under this plan deposits of more than €100 000 would be forced to take a bigger hit.A EU source in Brussels said Nicosia and international creditors were busy discussing changes to the levy."We really want to reduce the impact" on smaller savers but the "idea is still to achieve the same objective, (of raising) €5.8bn," the source said.In the bailout accord agreed in the early hours of Saturday with the EU, the International Monetary Fund and the European Central Bank, Cyprus accepted a levy of 6.75% on accounts up to €100 000 and 9.9% thereafter.The aim was to limit the overall size of the bailout to about €10bn, rather than the €17bn originally mooted.But the move has triggered outrage in Cyprus, forcing the newly-elected government onto the defensive as it tries to get parliament approval for the rescue package.The accord also dealt a serious blow to global confidence by stoking fears that other countries in difficulty might opt for the same course of action.On the financial markets, which have risen strongly in recent months on hopes the worst of the debt crisis was over, the banks were hit badly Monday as investors looked for safety first."If European policymakers were looking for a way to undermine the public trust that underpins the foundation of any banking system they could not have done a better job," said CMC Markets analyst Michael Hewson."The feeling is that the euro crisis could be back and that you could see full-on contagion, that's why you're seeing the market reaction today," Shane Oliver, chief economist at AMP Capital in Sydney, told Dow Jones Newswires.News of the controversial tax also drew a sharp response from Russian President Vladimir Putin, who, according to a Kremlin spokesperson, called it "unfair, unprofessional and dangerous."Russian Prime Minister Dmitry Medvedev too slammed the deal."We should say this directly: this simply looks like the confiscation of other people's money," Russian news agencies quoted Medvedev as saying. "I do not know who the author of this idea is, but this is what it looks like."Several analysts said the measure was meant to make sure that Brussels did not spend billions propping up the at-times ill-gotten gains of rich Russians, who are widely reported to have exploited Cyprus's reputation as a tax haven.Cyprus has repeatedly denied the allegations of being soft on "dirty money" and offered to open its accounts to international inspection.Estimates vary but the Moody's rating firm estimates that up to $19bn in private Russian cash is held in Cyprus. The figure accounts for between a third and half of all Cypriot deposits.Anastasiades, in an address to the shell-shocked nation on Sunday night, said he had chosen "the least painful option" and that rejecting the EU demands would have seen Cyprus exit the eurozone and face bankruptcy.Terming it the worst crisis to hit Cyprus since the 1974 Turkish invasion, he gave an assurance that those taking a hit now would be compensated when huge gas offshore gas deposits are eventually exploited, in about 2018.Breaking news of the levy shocked Cypriots at the start of a three-day holiday weekend, many rushing to cash points and depleting them within hours.Online transfers were stopped although shoppers were able to use credit cards at supermarkets and at fuel stations.Local media said Anastasiades is struggling to secure even a simple majority for the terms of the bailout in the 56-member parliament in which his conservative DISY parliament holds just 20 seats.Reports said the president may have to declare an additional bank holiday on Tuesday following the parliamentary postponement in order to prevent accounts being emptied.

Russia: Cyprus deposit tax 'dangerous'

Russian President Vladimir Putin on Monday called a proposed tax on bank deposits in Cyprus that could hit Moscow oligarchs especially hard "unfair, unprofessional and dangerous." "Putin said that this decision, in case of its adoption, will be unfair, unprofessional and dangerous," Russian news agencies quoted Kremlin spokesman Dmitry Peskov as saying. Russian prime minister and former president Dmitry Medvedev for his part said the levy "simply looks like the confiscation of other people's money. "Terms of the €10bn EU rescue package yet to be adopted by the Cypriot parliament would slap an unprecedented 9.9% fee on all bank deposits exceeding €100 000.Several analysts said the measure was meant to make sure that Brussels did not spend billions propping up occasionally ill-gotten gains of Russia's super-rich, much of which is believed to have been placed in Cypriot bank accounts."It is clear that (Cyprus) is under tremendous pressure from the European Union," Deputy Finance Minister Sergei Shatalov was quoted as saying by Interfax.Estimates vary but the Moody's rating firm estimates that up to $19bn in private Russian cash is secretly buried in Cyprus. The figure accounts for between a third and half of all Cypriot deposits.Russia's number two bank VTB - a state-owned institution - alone had $13.5bn resting in Cyprus through a subsidiary and was due to lose a tenth of that amount."VTB Group is carefully monitoring the situation," the bank said in a statement. "We can only assess its repercussions after studying the text of the law."Criticism resounded through Moscow amid warnings that a possible run on Cypriot banks could reverberate across Europe and set a bad precedent for future rescue packages for struggling states.A frustrated-sounding tycoon and former presidential contender Mikhail Prokhorov said that Brussels "had set a real financial mine under the idea of a single Europe.""And this is not because it touches Russian business, which can afford to lose two or three billion dollars," Prokhorov told the Kommersant business daily."The European Union essentially opened a Pandora's box," he stressed.Some analysts believe that the Russians will now only compound Cyprus's problems by taking their cash out and parking it in other tax havens such as Luxembourg."The unhappiest of the Russians will simply look for other places to put their money," said Paragone Advisory Group analyst Alexander Zakharov.Others noted that the Russian ruble was now likely to weaken in the face of growing investor risk aversion."Cyprus’s decision to impose a haircut on banks' depositors is likely to charge up negative dynamics in the ruble (and the whole emerging markets foreign exchange spectrum as well)," Moscow's VTB Capital said in research note.The Moscow market down more than 2% on Monday afternoon may also suffer from the smaller volume of available cash from which foreigners make direct investments in Russia.Cyprus has consistently ranked as the largest single foreign direct investor in Russia because of the tycoons' desire to repatriate their cash into money-making enterprises at home.But perhaps most under threat is an agreement on the extension of €2.5bn loan that Moscow extended to Nicosia in 2011 at a rate of 4.5%.Cypriot Finance Minister Michalis Sarris was tentatively scheduled to visit Moscow on Wednesday with the brief of lowering that rate and extending the loan's expiration date until 2020 from 2016.Moscow was reported to be seeking in exchange details about Russian billionaires who held accounts on the island.Russia was also reportedly interested in buying a majority stake in Cypriot lender Patriot Bank that is in need of rescue.Yet top Moscow finance officials hinted on Monday that the bank deposit tax may scuttle negotiations."It looks like the Eurogroup took this action without consulting Russia," Finance Minister Anton Siluanov was quoted as saying by Interfax."So, we are going to take a second look at whether to take part in a deal to restructure our earlier credit," Siluanov said.Medvedev said Russia would also "need to draw certain conclusions" before entering more Cyprus loan talks.

Cyprus faces recession 'for decades'

Russians are preparing to withdraw billions of euros from Cyprus and the island will plunge into a recession lasting for decades due to the onerous terms of a EU bailout, economists warned on Monday."The Russians are already indicating they want to withdraw their money. Why should they stay? They will go somewhere where they can be protected; we can't protect them," economist Simeon Matsi said."We have indications that billions (of euros) will be withdrawn, we already know of about three billion that is ready to move. They are already asking lawyers to draw up documents to withdraw money."As a condition for a desperately-needed €10bn bailout for Cyprus, fellow eurozone countries and international creditors Saturday imposed a levy on all deposits in the island's banks.Deposits of more than €100 000 will be hit with a 9.9% charge, while under that threshold the levy drops to 6.75%.The controversial tax is seen hitting Russian pockets hard, with experts estimating that Russian deposits in Cypriot banks amount to at least €15.4bn of the estimated €70bn of deposits held by Cyprus banks.Russian President Vladimir Putin on Monday criticised the proposed tax, describing it, according to a spokesman, as "unfair, unprofessional and dangerous". "The deal by the eurogroup dealt a very heavy blow to Cyprus it was the death knell for the financial sector," said economist Matsi."No one is going to trust Cyprus any more, whatever happens. The eurogroup, International Monetary Fund and the European Central Bank have managed to destroy the reputation of Cyprus."He predicted that Cyprus banks, which were scheduled to reopen on Tuesday after a three-day weekend, will remain closed for a long time to prevent a rush on accounts.Economist Castas Apostolides said the Cypriot government went unprepared into negotiations with the eurogroup."We should have called Europe's bluff," he said."A bank haircut on deposits is unacceptable; they should have walked out because without a business sector there is no Cyprus economy," Apostolides said."Cyprus will be unable to exit recession for the next 20 years. Our children will pay for this mistake."Anastasiades was Monday seeking the backing of MPs for the EU bailout deal that has also jolted global markets and raised fears of a new eurozone debt crisis. Ahead of the afternoon parliamentary vote on the hugely unpopular measure, negotiators were seeking to soften the blow on small-time depositors, who have been stunned by the announcement that their savings will be skimmed."If the proposal is rejected today (in parliament) then we will most probably be out of Europe and have to start again from scratch," said Masti.A University of Nicosia poll meanwhile found that 73% of Cypriots believe the newly-elected president had failed to secure the best possible deal for Cyprus.It also found that 71% of respondents believe parliament should vote against the bank levy, while 72% said deposits under €100 000 should not be touched.Sixty-two percent said that Cyprus should stay in the eurozone.

Cyprus mulls plan to seize bank deposits

Cyprus's parliament votes on Monday on a plan to seize money from bank deposits as part of an EU bailout, a move that has sent a shiver across the bloc, caused the euro to tumble and stock markets to dive.The announcement at the weekend that tiny Cyprus would impose a tax on bank accounts as part of a €10bn bailout broke with previous practice that depositors' savings were sacrosanct.Ahead of the vote in parliament, the government was working on a plan to soften the blow to smaller savers, by tilting more of the tax towards those with deposits greater than €100 000. The government says Cyprus has no choice but to accept the bailout with the levy on deposits, or go bankrupt.Residents on the island emptied its cash machines to get their funds over the weekend. The move not only infuriated Cypriots, it unnerved depositors in the eurozone's weaker economies and investors fearing a precedent that could reignite market turmoil.The euro tumbled early on Monday in Asian trade.London's FTSE 100 and Paris's CAC 40 fell between 1.5% and 2% on opening.Brussels has emphasised that the measure is a one-off for a country that accounts for just 0.2% of European output. The worst fear is that savers in other, larger European countries could become nervous and start withdrawing funds, although there was no immediate sign of that early on Monday."Despite reassurances from Brussels that Cyprus is a special case and that indiscriminate levies won't be a common policy tool, depositors across Europe are doubting their sincerity and are fearing that a new precedent has been set for other debt-laden eurozone countries," Jonathan Sudaria, dealer at Capital Spreads, said in a note.Monday is a bank holiday in Cyprus, giving the government until Tuesday to approve the measures before banks open. The bailout is needed mainly to recapitalise banks.Approval in the fractious 56-member parliament is far from a given: no party has an absolute majority and three parties say outright they will not back the tax. A vote initially planned for Sunday was rescheduled to give more time to build a consensus.Faced with a growing public backlash, Cypriot finance ministry officials began discussions with lenders on Sunday to lessen the blow for smaller savers.A source close to the consultations authorities were hoping to cut the tax to 3.0% from 6.7% for deposits under €100 000. The rate for deposits above that would then be jacked up to 12.5% from 9.9%.In Brussels, a spokesperson for Olli Rehn, the European commissioner in charge of economic affairs, said changes to the amounts paid by different depositors could be acceptable given that the financial impact would be the same.Cypriot President Nicos Anastasiades, a conservative elected just three weeks ago, said the tax on deposits was an alternative to a disorderly bankruptcy.In a televised address, he said it was painful but "will eventually stabilise the economy and lead it to recovery."Savers who lost money would be compensated by shares in commercial banks, with equity returns guaranteed by future revenues expected from natural gas discoveries, Anastasiades said. But many legislators remain unconvinced."Essentially parliament is called to legalise a decision to rob depositors blind, against every written and unwritten law," said Yiannakis Omirou, speaker of parliament and head of EDEK, the small Socialist party. "We refuse to subscribe to this."Cyprus's banking sector is large for a country that makes up a tiny portion of the eurozone economy, and its banks have been severely hurt by exposure to much larger neighbour Greece.Its open economy has meant that its banks also attract large deposits from Russians. Moscow is also considering extending an existing €2.5bn loan to help bail the island out.A Russian government source said there was no decision yet on whether to extend the loan or whether to involve Russian investors in the recapitalisation.Russia's Deputy Economy Minister Andrei Klepach was quoted as saying he did not believe the Cyprus action would affect Russia's domestic capital flows.Many foreigners live on Cyprus, including large communities of expatriates from Britain, which maintains a military base there. The government in London has said it will guarantee the deposits of its military service members stationed there.

Cypriots 'betrayed' by EU bailout

"How do I feel about the bailout? I will tell you from the heart. We are facing an economic war," said Mano, a souvenir shop owner in Cyprus which is facing crippling EU bailout terms.Like many Cypriots, Mano feels betrayed by the European Union and his government for agreeing the €10bn bailout that will impose an unprecedented levy on all bank deposits in return."My son is in the army. Next year he will be going to university. He has saved five thousand euros. But against his will, they will take €300 from him. The EU will be stealing legally from his pocket," said Mano."I always taught my son to be straight. I hope he will not follow the morality of the EU."A few streets away from Mano's Nicosia shop, public sector employee Elpida is sitting in a cafe with her husband and daughter, enjoying the Sunday sunshine and an iced coffee.She too is still digesting the announcement made early on Saturday after marathon talks in Brussels between Cyprus and fellow eurozone members. "I feel betrayed. This decision might bring good results in terms of arithmetics but it will break our trust in the economy," she said.Many Cypriots have rushed to withdraw cash from ATM machines across the Mediterranean island since the announcement was made on Saturday at the start of a three-day holiday weekend, but not Elpida."I felt it was pointless to go and it would be frustrating if I could not withdraw money," she said. Andreas Hadgigeorghiou, a dentist, said he was angry because the bailout is the first in the eurozone in which private depositors are having to help foot the bill. "Many countries have economic problems more than Cyprus. Why are they doing this only in Cyprus?" he lamented. Others said they were simply resigned to the bailout and refused to talk about it "because we just want to enjoy our coffee now while we can," in the words of one woman.The streets of Nicosia were largely empty on Sunday as most families were off to the coast or the countryside to enjoy the weekend break and prepare for the Green Monday bank holiday which marks the start of Lent for the Greek Orthodox.For Mano, the decision to announce the bailout deal early on Saturday was a calculated one by the Cypriot government and the Eurogroup whom he brands as "the biggest thieves I have ever seen.""They know that Green Monday is a special day for Cypriots, that people will go to their villages and be with their families to eat, drink wine and relax," and be at the most vulnerable he said. Elpida agreed, saying the absence of weekend street protests was because people had taken by surprise. "Some people are still in a state of shock and still don't realise what happened. They don't know how to react," she said. "What do you do? Do you go out on the streets and start yelling? "Cyprus postponed an emergency debate in parliament on the bailout until Monday in the face of hostility to its terms among many MPs.But despite the public statements of opposition; many people expect that the bailout will eventually go through. "It is too late now. The damage has been done," said one banker, who works mostly with an international clientele. "In any case, I think that, when banks reopen, we will lose the foreign depositors," said the banker, alluding to the many Russians who had regarded Cyprus as a safe haven for their investments, sparking money-laundering allegations. Irini Makrides, who owns shoe shops across the Mediterranean island, said there is nothing that can be done but for the MPs to approve the bailout."I am not happy, but they have to sign," she said. "But the levy must be a one-off." Mano said that in the end Cypriots would have to cope with the demands of the Eurogroup." They are not going to allow us to breathe... but we will survive," he said. "We have no other choice."

Eurozone nod for €10bn Cyprus bailout

Eurozone finance ministers and the International Monetary Fund on Saturday agreed on a €10bn bailout deal for Cyprus, the fifth eurozone member to be saved from bankruptcy.The debt rescue package, which was agreed after some 10 hours of talks in Brussels, is significantly less than the 17 billion euros Nicosia had initially requested. Under the deal, diplomats said all bank deposits in Cyprus would be hit with a one-off, unprecedented "levy" of up to 9.9%, depending on the amounts held. At the same time, a "withholding tax" will be imposed on interest on bank deposits, in a further hit for private investors in the Cypriot banking system. Monday is a bank holiday in Cyprus so it will be Tuesday before depositors will be able to react.Cyprus Finance Minister Michalis Sarris said his country's parliament would on Sunday vote on the introduction of the bank levy.The rescue talks, attended by Cyprus President Nikos Anastasiades, had dragged on as the Cypriot government fought its ultimately doomed battle to avoid a "bail-in" or haircut, which it argued would trigger a run on its banks and ricochet on through the wider eurozone financial system.Cyprus which accounts for just 0.2% of the combined eurozone economy - has become the latest country to secure a debt rescue package from its eurozone partners in the three-year debt crisis.The price tag is very small compared with two rescues for Greece worth some €380bn, Ireland's €85bn, Portugal's €78bn and €41bn for Spanish banks."It's something that compared to other possible outcomes, is the least onerous," Sarris said about the deal, adding that the arrangement meant his government "avoided salary and pension cuts" for public sector workers.Intended to apply to everyone from pensioners to Russian oligarchs alleged to have billions stashed away in what officials say is a bloated Cypriot banking sector, the proposed bank levy immediately raised concerns among finance experts over a possible bank run in bigger eurozone economies, where fragile public finances are also under scrutiny.Dutch Finance Minister Jeroen Dijsselbloem, after chairing the talks with counterparts including International Monetary Fund head Christine Lagarde and the European Central Bank's Mario Draghi, said the "upfront, one-off" tax is expected to raise €5.8bn on top of the loans still to be finalised by eurozone parliaments.The levy will see deposits of more than €100 000 in Cypriot banks hit with a 9.9% charge when lenders re-open their doors on Tuesday. Under that threshold the levy drops to 6.75%.Top ECB official Joerg Asmussen said the only way to drive down the rescue was to claw back money from the Cypriot banking sector, which is estimated to hold assets worth five times the country's economic output. "In order to have burden-sharing, you extend the tax base," Asmussen said. "To residents and also to non-residents."Lagarde said she would recommend that the IMF board now agree to chip in what one diplomat said could amount to another billion euros in loans.Lagarde said "the exact amount is not yet specified and will take a little bit of time" to arrive at.Officials including the EU's economy and euro commissioner Olli Rehn also cited "positive" parallel talks with Russia on possibly easier terms on a €2.5bn loan it gave to the Cypriot government.According to an EU diplomatic source, Sarris is set to visit Moscow on Wednesday, RIA Novosti news agency reported, for expected talks about extending that loan, due to be repaid in 2016.Russians are among the biggest investors in Cyprus, and hardline lenders like Germany had pressed for months for a clampdown on banks' alleged involvement in money laundering.Under the new bailout deal, the Cyprus government will also have to hike corporate tax to 12.5% from 10% and sell off state assets so as to help balance the public finances."As it is a contribution to the financial stability of Cyprus, it seems 'just' to ask a contribution of all deposit-holders" to the rescue, Dijsselbloem said. "The challenges we were facing in Cyprus were of an exceptional nature," the Dutchman added, under tough questioning from journalists at a press conference after the meeting in Brussels."We did what we had to," said French Finance Minister Pierre Moscovici on exiting the talks.The total annual output of the Cypriot economy is €17bn, and the IMF was concerned that a bailout on that level would take the country's debt burden to unsustainable levels.

Cyprus works on deal to soften bank levy

Cyprus was working on a last-minute proposal to soften the impact on smaller savers of a bank deposit levy after a parliamentary vote on the measure central to a bailout was postponed until Monday, a source said. In a radical departure from previous aid packages, eurozone finance ministers want Cyprus savers to forfeit a portion of their deposits in return for a €10bn bailout for the island, which has been financially crippled by its exposure to neighbouring Greece. The decision, announced on Saturday morning, stunned Cypriots and caused a run on cashpoints, most of which were depleted within hours. Electronic transfers were stopped.The originally proposed levies on deposits are 9.9% for those exceeding €100 000 euros and 6.7% on anything below that.The Cypriot government was on Sunday discussing with lenders the possibility of changing the levy to 3.0% for deposits below €100 000, and to 12.5% for above that sum, a source close to the consultations on condition of anonymity.The move to take a percentage of deposits, which could raise almost 6 billion euros, must be ratified by parliament, where no party has a majority. If it fails to do so, President Nicos Anastasiades has warned, Cyprus's two largest banks will collapse.One bank, the Cyprus Popular Bank, could have its emergency liquidity assistance (ELA) funding from the European Central Bank cut by March 21.A default in Cyprus could unravel investor confidence in the eurozone, undoing the improvements fostered by the European Central Bank's promise last year to do whatever it takes to shore up the currency bloc.A meeting of parliament scheduled for 14:00 GMT on Sunday was postponed for a day to give more time for consultations and broker a deal, political sources said. The levy was scheduled to come into force on Tuesday, after a bank holiday on Monday.Making bank depositors bear some of the costs of a bailout had been taboo in Europe, but eurozone officials said it was the only way to salvage Cyprus's financial sector, which is around eight times the size of the economy.European officials said it would not set a precedent.In Spain, one of four other states getting eurozone help and seen as a possible candidate for a sovereign rescue, officials were quick to say Cyprus was a unique case. A Bank of Spain spokesman said there had been no sign of deposit flight.But the chief of Greece's main opposition, the anti-bailout Syriza party, Alexis Tsipras, blamed the move on German Chancellor Angela Merkel, according to Greek state news agency ANA."We must all together raise a shield to protect the peoples (of Europe) from Ms Merkel's criminal strategy," said Tsipras, who wants a pan-European debt conference to forgive debt. The crisis is unprecedented in the history of the Mediterranean island, which suffered a war and ethnic split in 1974 in which a quarter of its population was internally displaced. Anastasiades, elected only three weeks ago, said savers will be compensated by shares in banks guaranteed by future natural gas revenues.Cyprus is expecting the results of an offshore appraisal drilling this year to confirm the island is sitting on vast amounts of natural gas worth billions.In a televised address to the nation on Sunday, Anastasiades said he had to accept the tax in return for international aid, or else the island would have faced bankruptcy."The solution we concluded upon is not what we wanted, but is the least painful under the circumstances," Anastasiades said. With a gross domestic product of barely 0.2% of the bloc's overall output, Cyprus applied for financial aid last June, but negotiations were stalled by the complexity of the deal and the reluctance of the island's previous president to sign.International Monetary Fund Managing Director Christine Lagarde, who attended the meeting, said she backed the deal and would ask the IMF board in Washington to contribute to the bailout. According to a draft copy of legislation, failing to pay up would be a criminal offence liable to three years in jail or a €50 000 fine.Those affected will include rich Russians with deposits in Cyprus and Europeans who have retired to the island, as well as Cypriots themselves. "I'm furious," said Chris Drake, a former Middle East correspondent for the BBC who lives in Cyprus. "There were plenty of opportunities to take our money out; we didn't because we were promised it was a red line which would not be crossed." "I've lost several thousand," he told.British finance minister George Osborne told the BBC on Sunday that Britain would compensate its 3 500 military personnel based in Cyprus. Anastasiades's right-wing Democratic Rally party, with 20 seats in the 56-member parliament, needs the support of other factions for the vote to pass. It was unclear whether even his coalition partners, the Democratic Party, would fully support the levy.Cyprus's Communist party AKEL, accused of stalling on a bailout during its tenure in power until the end of February, and would vote against the measure. The socialist Edek party called EU demands "absurd". "This is unacceptably unfair and we are against it," said Adonis Yiangou of the Greens Party, the smallest in parliament but a potential swing vote.Many Cypriots, having contributed to bailouts for Ireland, Portugal and Greece Greece's second bailout contributed to a debt restructuring that blew the €4.5bn hole in Cyprus's banking sector are aghast at their treatment by Europe.Cyprus received a "stab in the back" from its EU partners, the daily Phileleftheros said.But it and another newspapers highlighted the danger of plunging the banking system into further turmoil if lawmakers sat on the fence."Even if the final agreement is wrong, if this is not approved by parliament the damage will be even greater," Politis economics editor Demetris Georgiades said in an editorial.