NEWS,19.03.2013

Cyprus deal on brink of collapse

Cyprus on Tuesday dropped a controversial levy on bank savings below €20 000, sparking a warning by the central bank governor that the crucial eurozone bailout deal was now in danger of collapse. Panicos Demetriades's warning came as International Monetary Fund chief Christine Lagarde urged Cyprus to meet its commitments under the €10bn ($13bn) deal sealed with eurozone partners at the weekend.The revised plan, drafted in response to an angry backlash at home and jitters that roiled global markets, sees a one-time levy being dropped on bank savings below €20 000 but retained at 6.75% on deposits of €20 000 to €100 000 and at 9.9% for amounts above €100 000.Given the amendments to the bill, the tax which was originally to have applied to all bank deposits "will not yield the estimated €5.8bn agreed by the Eurogroup", Demetriades told parliament's finance committee."If we secure €5.5bn it will be considered in breach of the agreement and perhaps will not be accepted," he said, as cited by the Cyprus News Agency.The bill was to be voted on later on Tuesday by parliament, whose stamp of approval is crucial for the bailout deal to go ahead.President Nicos Anastasiades has called on all parties to back the bailout, warning that the island faces bankruptcy if it is rejected.Fearing a run on accounts, Cyprus has shut its banks until at least Thursday, with the local stock exchange closed for the same period.The planned levy on bank savings was agreed during the negotiations for the sovereign bailout deal for Cyprus.Under the original accord, Cyprus agreed to impose a levy of 6.75% on bank accounts up to €100 000 and 9.9% for larger deposits. The move was aimed at raising €5.8bn for the government.But faced with a public backlash that spooked global markets, eurozone finance ministers told Cyprus on Monday to take another look at the proposal.Eurogroup President Jeroen Dijsselbloem of The Netherlands said ministers "continue to be of the view that small depositors should be treated differently from large depositors".The Eurozone finance ministers said there would be re-negotiations to "introduce more progressivity in the one-off levy", in other words increasing the tax rate on bigger holdings to ensure the same €5.8bn return.However, the Cypriot authorities, wary of seeing a flight of capital from the debt-hit Mediterranean island, opted to leave the maximum tax at 9.9%, according to an amended tax bill seen by AFP. Lagarde, speaking in Frankfurt before the revised bill was made public, said the IMF was "extremely supportive of the Cypriot authorities' intentions to introduce more progressive rates" on taxing bank deposits.She said it was now up to Cyprus to make good its commitments."It's time to deliver," Lagarde told a financial congress.Adding to the pressure on the newly-elected Cyprus leaders, a German government spokesperson said on Tuesday that chancellor Angela Merkel had called Anastasiades to stress that his country should hold talks only with international creditors on its bailout deal."The chancellor once again emphasised that the negotiations are to be conducted only with the troika," the spokesperson told AFP, referring to the term used for the European Union, the European Central Bank and the International Monetary Fund.The comment was made as the Cypriot Finance Minister Michalis Sarris headed to Moscow after an explosion of anger in Russia at the EU bailout deal for the island that could see Russian investors lose billions of euros.Moscow, which has an outstanding €2.5bn loan to Cyprus and billions more in deposits in the island's banks, reacted angrily to the EU levy.Russian President Vladimir Putin slammed the "dangerous" move and turmoil hit stock and currency trades on Monday amid concerns that a precedent had been set for bigger debt-saddled eurozone economies such as Italy and Spain.Estimates vary but the Moody's rating firm estimates that Russian companies and banks keep up to $31bn in Cyprus, which accounts for between a third and half of all Cypriot deposits.After markets suffered losses on Monday, Asian bourses rebounded on Tuesday as news spread that Cyprus was reworking the controversial savings levy.Tokyo stocks led the way, closing 2.03% higher. However, Hong Kong suffered a late sell-off to end 0.19% lower.The euro also rebounded in Asia, fetching $1 2961, up from $1 2957 in New York on Monday.

Cyprus scraps tax on smaller deposits

Cyprus's revised draft bill for a levy on bank deposits scraps the measure for savings under €20 000 but does not compensate for the resulting lost revenue by raising it for the wealthy.The draft, did not say if the new structure for the levy raises the required €5.8bn European officials have demanded in return for €10bn in aid. The bill sets a zero percent levy on deposits of up to €20 000, a 6.75% rate for amounts between €20 000 and €100 000 and maintains a 9.9% tax on all deposits above that level. Under a previous agreement struck by euro group finance ministers on Saturday, all deposits below €100 000 would have been taxed at 6.75% and everything above at 9.9%. After an outcry in Cyprus and abroad against the move, eurozone finance ministers urged Cyprus on Monday to scrap the levy below €100 000 to spare small savers, and raise it instead for richer bank clients, to 15.6%. But Nicosia was reluctant to agree to such a move because it fears it would scare away foreign depositors, mainly from Russia, and undermine the country's banking-based business model.

Cyprus 'unlikely' to pass bank tax law

Cyprus's parliament is unlikely to pass legislation taxing deposits which has prompted turmoil in its banking system, falling short on a condition for an international bailout, government spokesperson Christos Stylianides said on Tuesday.Cypriot President Nicos Anastasiades briefed German Chancellor Angela Merkel and EU economics affairs commissioner Olli Rehn on Monday evening.While Anastasiades said he was ready to stand by what was agreed at a euro zone finance ministers' meeting last week, he "insisted that EU partners offer some additional help," Stylianides told state radio.Parliament was due to convene at 16:00 GMT. No single party has a majority in the 56-member chamber.Stylianides said Anastasiades was also likely to talk to Russian President Vladimir Putin during the day. A decision to tax bank deposits has far-reaching consequences not just for locals but for thousands of Europeans and Russians with business interests on the island.

India's central bank cuts interest rate

India's central bank cut its main interest rate by 25 basis points on Tuesday  its second such reduction this year in an effort to jumpstart the slowing economy.After meeting in the financial capital Mumbai, the Reserve Bank of India (RBI) said that the benchmark repo rate, at which it lends to commercial banks, would fall to 7.50%, as predicted by most economists. The cash reserve ratio - the percentage of deposits banks must keep with the central bank has been kept unchanged. The RBI's rate-cut decision was widely expected by economists and business leaders, who have been calling for lower borrowing costs to help the economy, which grew at just 4.5% in the quarter to December.Despite ongoing concerns about inflation, the RBI's latest cut comes after measures from India's finance minister P. Chidambaram in his budget last month.He pledged to cut a gaping fiscal deficit in a bid to avert a damaging credit ratings downgrade and help revive sustained growth, and this week he said the bank should "take comfort" from the government's efforts.

European gangs find new ways to earn

Europe's economic crisis has made underworld criminal gangs move into new kinds of illegal activities ranging from the counterfeiting of food and medicine to illicit waste trafficking and fraud in the energy markets, Europol said on Tuesday. Economic crimes including fraud and corruption cost European governments, companies, and individuals billions of euros in lost taxes and revenues a year and hamper the region's economic recovery, the European crime-fighting agency said in a new report on serious and organised crime. An estimated 3 600 organised crime groups are active in the European Union (EU), it said, operating mainly in traditional areas such as international drug trafficking, cybercrime, human trafficking and money laundering. "Many organised crime groups are flexible in their illicit business activities and capable of quickly identifying new opportunities that have arisen during the current economic crisis," Europol said." In response to reduced consumer spending power, counterfeiters have expanded their product ranges. In addition to the traditional counterfeit luxury products, organised crime groups now also counterfeit daily consumer goods such as detergents, food stuffs, cosmetic products and pharmaceuticals. "Europol said law enforcement sources and energy regulators in the EU have warned of an emerging threat of fraud related to the electricity and gas markets. Organised crime groups such as the mafia, or cosa nostra, are already involved in alternative energy, such as wind and solar, as well as waste management businesses as a way of laundering profits, Europol said. "Businesses trading on energy exchanges and transmission system operators are noticing increasing interest from companies with little experience in these markets, but eager to enter them as wholesale traders," it said in the report. "This mirrors developments observed during the emergence of... frauds with carbon credits, in which fraudsters managed to defraud large amounts of VAT and to almost monopolise carbon trading with 90% of the trading in CO2 credits driven by fraud," it said without giving further details.

Drug trade is Europe's biggest problem

An estimated 3 600 organised crime gangs are active in Europe, the continent's policing agency revealed on Tuesday, mainly trading in illegal drugs including supplying some 124 tons of cocaine annually. "International drug trafficking remains the most active organised crime activity," Europol said in a statement as it released its "Serious and Organised Crime Threat Assessment" report from its headquarters in The Hague.Around 30%, or 1 080, of criminal groups were involved in drug trafficking to the continent, but other crimes linked to the ongoing economic crisis and the Internet were also on the rise, Europol said. Cannabis was the most popular drug in Europe with 23 million users smoking an estimated 1 300 tons of cannabis resin and 1 200 tons of herbal cannabis every year.Cocaine remained second-most popular, with an estimated 4 million users consuming 124 tons of powder every year, Europol said. The 46-page report which Europol said was its most detailed study ever into organised crime - warned of a new breed of criminal gang on the rise, spurred on by the eurozone crisis and online activity."These groups are no longer defined by their nationality or specialisation in one area of crime but by an ability to operate on an international basis, with a business-like focus on maximising profit and minimising risk," Europol's chief Rob Wainwright said."They are the epitome of our new globalised society," he said. The economic crisis has seen gangs shifting their activities from counterfeiting luxury items to daily consumer goods including food, detergents, cosmetics and pharmaceuticals. It has also given rise to increased human trafficking as "growing demand for cheap products and services stimulates the expansion of a shadow economy in which migrant labour is exploited". Wainwright warned that cost-cutting as a result of the cash crunch, especially when it came to law enforcement, will allow organised crime groups to operate more easily and remain undetected for longer. Europol's latest report will be sent to its 27-member states to help it define crime-fighting priorities in the coming four years, the organisation said.