People are queueing to take their money out of banks in Cyprus. Why? The reason is that they have until Tuesday to take their money out, before being charged a tax of between 6 and 10 per cent of their funds. In return, they will be given shares in their bank.
WHAT’S THE PROBLEM?
Cyprus is in financial trouble following the collapse of its neighbour Greece. The arrangement is part of a 10 billion euro rescue deal between Cyprus’s President Anastasiades and the Eurozone. (The Eurozone is a monetary ‘club’ of 17 nations which gives loans in return for economic reform.) Cyprus will be the fifth Eurozone country to receive a bailout, after Greece (380 billion), Ireland (85 billion), Portugal (78 billion) and Spain (41 billion).
WHY TAX THE DEPOSITORS THIS TIME?
Why is such an unusually heavy price being imposed on depositors in Cyprus banks? Two main reasons have been cited:
1. According to some, Cyprus banks have an unusually high proportion of deposits from Russian money launderers, money which Germany feels should not be protected in the deal. Hence a deal which taxes that money. According to this argument, the effect on ordinary Cyprus citizens is unfortunate, but necessary.
2. To warn investors not to invest in overstretched banks.
WHAT HAPPENS NOW?
The Cyprus parliament is due to vote on the deal on Monday 18 March. In the meantime, many depositors will continue to try to withdraw their funds, in an attempt to avoid the tax.
