Euro zone urges Cyprus to spare smaller savers from bank levy

Mon Mar 18, 2013 5:22pm EDT
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By Michele Kambas and Harry Papachristou

NICOSIA/ATHENS (Reuters) - Euro zone ministers urged Cyprus to let smaller savers escape a levy on bank deposits, before a parliamentary vote on Tuesday that will either secure the island's financial rescue or threaten default.

A weekend announcement that Cyprus would impose a levy on bank accounts as part of a 10 billion euro ($13 billion) bailout by the European Union broke with previous practice that depositors' savings were sacrosanct.

The euro and stock markets fell on concern that developments in tiny Cyprus could reignite the financial crisis in the 17-nation euro zone, while angry Cypriots staged protests outside their heavily guarded parliament.

Before Tuesday's vote, which is too close to call and would send reverberations across the currency area if lost, euro zone finance ministers held an evening teleconference and said depositors with less than 100,000 euros should be protected, officials said.

Under the deal struck in Brussels on Saturday, bank deposits under that level would have faced a levy of 6.7 percent, ripping up the protection savers thought they enjoyed on insured deposits up to that limit, while those above would be stung for 9.9 percent.

The finance ministers said they favored a higher, 15.6 percent hit for richer savers, so more modest accounts could be spared.

That would look similar to a deal the Cypriots, fearing the destruction of their banking model which lures money from rich Russians and others, baulked at in Brussels at the weekend.

It was not clear if Nicosia will accept it now but if it does, it would still raise 5.8 billion euros from the bank levy as planned, a Greek finance ministry source said.   Continued...

Protesters raise their open palms showing the word "No" during an anti-bailout rally outside the parliament in Nicosia March 18, 2013. REUTERS/Yorgos Karahalis