25 Mar 2013

Cyprus to tax big savers in effort to secure bailout

1:15 pm on 25 March 2013

In a dramatic U-turn, the Cyprus government says it will tax big savers at its largest bank as it races to satisfy European partners and seal an 11th-hour bailout deal to avert financial collapse.

The Mediterranean island's finance minister has reported significant progress in talks with international lenders to clinch a deal before a Monday deadline or lose emergency funding for its stricken banks and risk falling out of the eurozone.

With its banking sector crippled by exposure to crisis-hit Greece, Cyprus needs to raise €5.8 billion in exchange for a €10 billion lifeline from the European Union and International Monetary Fund to keep the country's economy afloat.

Cyprus has agreed with EU/IMF lenders on a 20% levy on deposits of more than €100,000 at the Bank of Cyprus and a 4% levy on deposits of the same amount at other lenders, a senior government official told Reuters on Saturday.

The official said a Cypriot plan to tap nationalised pension funds, opposed by Germany, would not be part of efforts to raise billions of euros in return for the bailout.

On Tuesday, parliament rejected a levy on depositors, big and small, as bank robbery.

Ordinary Cypriots have been besieging cash machines ever since banks were closed last weekend on the orders of the government to avert a massive flight of capital.

President Nicos Anastasiades said the bailout deal would be completed soon.

In a statement, European Commissioner Olli Rehn said there are only hard choices left, but EU assistance could help minimise the economic damage.