Tag Archives: deposit tax

Cyprus: It’s not about the numbers

Cyprus Financial CrisisThe Eurogroup agreed on Monday night to allow Cyprus to change the make up of its controversial deposit tax. Instead of imposing a levy of 6.75 percent on savings under 100,000 and 9.9 percent on those above 100,000 – as agreed in Brussels in the early hours of Saturday – Nicosia can play around with the numbers, just as long as it raises the arranged amount of 5.8 billion euros.

Cyprus’s new but already beleaguered President Nicos Anastasiades is proposing that bank customers with deposits under 20,000 euros should not be taxed at all, while keeping the levy the same for the remaining depositors. Cypriot MPs have already shown a reluctance to approve the tax, mindful of the impact on depositors but also the long-term damage it could do to the island’s banking system and economy.

However, what’s happened over the past few days and what’s likely to happen in the days and weeks to come has little to do with numbers. It is much more about perceptions. Even if a financial meltdown is averted in Cyprus this week, the decision to tax depositors there in order to reduce the eurozone and International Monetary Fund contribution to the island’s bailout has sown the seeds for a future eruption.

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After Cyprus, eurozone risks transmission failure and running out of road

?????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????The Eurogroup’s decision on Friday to impose a one-off tax on depositors in Cyprus may mark a turning point in the euro crisis. Only, the single currency’s decision makers might soon realize that in taking this particular turn, they also ran out of road.

Under pressure from several members of the eurozone – Germany in particular, if reports are accurate – the new Nicosia government agreed that deposits above 100,000 euros would be taxed 9.9 percent and those under 100,000 at a rate of 6.75 percent.

This is an unprecedented decision for a eurozone country. It is also one whose potential consequences reach much further than an island in the eastern Mediterranean. It threatens to cause the transmission system between the economic and financial sectors on one side and the political and social on the other to seize up. Without this, the euro cannot be propelled forward. It cannot function.

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