Insight: How Europe stumbled into scheme to punish Cyprus savers

Mon Mar 18, 2013 1:30pm EDT
 
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article | Single Page
[-] Text [+]

By Annika Breidthardt and John O'Donnell

BERLIN/BRUSSELS (Reuters) - Just three weeks after being elected president of Cyprus, Nicos Anastasiades traveled to Brussels for his European debut last Thursday. His fellow leaders were all friendly enough.

Hours before he was due to attend his first European summit, he met Germany's Chancellor Angela Merkel and other new colleagues at a cocktail reception.

At the meeting for center-right politicians in a swanky hall opposite the Belgian king's palace, Merkel congratulated him on his election victory. According to one person who attended, Anastasiades asked his new friends to make sure any bailout for Cyprus was fair.

Less than 48-hours later, when the deal was finally announced by exhausted officials in the pre-dawn hours of Saturday morning, it seemed anything but.

Cyprus was forced to announce a plan to claw back a levy on deposits from savers in its banks, including - most controversially - a big charge on those with small deposits that were supposed to be guaranteed by its deposit insurance scheme.

The outcome caused fury on the streets of the Mediterranean island state, where people quickly emptied out the cash machines to get at their savings. By Monday morning, the jitters spread across the continent, with share prices falling in London, Frankfurt and Paris.

Cyprus - barely 0.2 percent of Europe's economy - was the tail wagging the EU dog, sowing uncertainty that raised the prospect that savers elsewhere would flee their banks.

According to insiders who attended the negotiations, the big hit to ordinary Cypriot savers was an outcome that nobody seemed to be seeking but no one could find a way to prevent.   Continued...

 
A customer walks out of a branch of Bank of Cyprus UK, in north London March 18, 2013. REUTERS/Andrew Winning