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Cypriot ministers delay vote, try to revise bank tax plan

Cypriot ministers delay vote, try to revise bank tax plan
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Ministers in Cyprus are rushing to revise a plan to seize money from private bank deposits as part of a 10 billion euro EU bailout.

The shock announcement, this weekend, of a blanket tax of 6.7 percent on all of the island’s bank accounts broke with the standard practice that depositors savings were untouchable. It sent a shiver through the eurozone bloc, causing the euro to tumble and the markets to nosedive.

Ana Yanjosi, a Cypriot resident who was demonstrating against the levy, said:

“We don’t need anyone to do anything for us, we don’t need to owe to other countries, and we don’t want to be involved with this financial third world war that is happening right now. Because this is what is happening! And it is a war and we don’t want Germany here and we don’t want them to help us at all.”

It’s understood that, in an attempt to assuage public anger, the government plans to soften the blow on smaller savers by tilting a higher rate of tax towards those with greater savings. One idea being discussed would involve increasing the proposed tax for depositors with more than 100,000 euros in their account, while bringing in a tax-free threshold of up to 20,000 euros.

Fears of a run on banks

Over the weekend, many Cypriots rushed to banks to withdraw as much of their money as possible. That has led to fears that bank customers in other countries hit by the euro crisis may do the same. US economist Paul Krugman wrote in the New York Times: “It’s as if the Europeans are holding up a neon sign, written in Greek and Italian, saying ‘Time to stage a run on your banks!’”

Cypriot banks have many Russian depositors, and Russia has contributed 2.5 billion euros to Cyprus’ bail-out loan. The surprise announcement of the bank account tax plan was met with raised eyebrows in Moscow, where a Kremlin spokesman said that President Vladimir Putin thought the measures “unfair, unprofessional and dangerous.”

The eurozone has indicated that changes are acceptable as long as the previously agreed return of almost six billion euros is maintained.