Having been part of the EU bailout decision to tax all of Cyprus’s bank account holders – rich and poor – the International Monetary Fund has now said it supports the Cypriot government’s efforts to ease the pain for smaller depositors.
IMF head Christine Lagarde, speaking at a financial conference in Germany, added her voice to the chorus of backtracking.
“We are also obviously extremely supportive of the Cypriot authorities’ intentions to introduce more progressive rates in the one-off levy or deposit-share swap within the agreed financial envelope of 5.8 billion (euros),” she said.
The fact that smaller account holders would have money taken from them has been widely criticised as unfair, leading French finance minister Pierre Moscovici to comment: “There was a feeling, perhaps, that we were breaking a taboo. That’s why members of the Eurogroup held a tele-conference yesterday to say that we are ready to consider a progressive tax, if the Cypriot government and parliament decides that deposits of less than 100,000 euros are exempt.”
With their original decision to impose the levy on all Cypriot savers, the Eurogroup of eurozone finance ministers created a crisis, but their backtracking has not made it any easier to reach a resolution.
The problem is that if the smallest savers are excluded – that is those with less than 20,000 euros in their accounts – the amount raised would not be enough.
The alternative would be to take a higher percentage levy from the accounts with deposits higher than 100,000 euros, but the Greek government is worried about reaction from Russia investors who make of the bulk of non-EU and non-Cypriot account holders.