Nailbiting over Nicosia Widespread Anger Erupts Over Bank Account Levy
The euro-zone deal to save Cyprus from bankruptcy was hard-fought, and a long time coming. But the conditions placed on the bailout, namely a one-time tax on all bank deposits, have sparked fury in Cyprus and abroad. Parliamentary approval in Nicosia is far from certain.
Chancellor Angela Merkel and Finance Minister Wolfgang Schäuble have not won any friends in Cyprus this week. Sure, they approved a rescue package for the country, but at what price? People on the small island in the Mediterranean are reacting to the deal with shock, anger and disgust, with many rushing to ATMs to withdraw as much of their savings as possible before a chunk of it is confiscated to pay for their government's bailout.
Under the bailout deal, everyone with a bank account on the island has to pay a one-time levy on their deposits -- 6.75 percent on everything up to 100,000 ($129,000) and 9.9 percent on anything more. The levy was a key condition for the 10 billion in emergency loans from its euro-zone partners, and Germany was its most vociferous advocate. The government in Nicosia begrudgingly agreed, because its only other choice was to risk bankruptcy.
The anger hasn't been limited to middle class Cypriots, either. Russian President Vladimir Putin said through a spokesman that the tax on bank deposits was "unfair, unprofessional and dangerous." Russian investors hold a considerable amount of money on the island.
Despite the approval of the bailout in Brussels over the weekend, the Cypriot parliament must still approve the deal -- by no means a certainty. President Nicos Anastasiades had planned to hold the vote on Sunday, but postponed it by one day out of apparent fear of a rejection. His conservative DISY party has only 20 votes in the 56-member legislature, coupled with nine votes from the coalition DIKO party. One dissenter from either faction could create a stalemate. Opposition parties have already said they will vote "no." Then, on Monday, a vote was delayed again until Tuesday in order to provide enough time for a thorough debate in parliament, and officials said banks in Cyprus may have to remain closed through Wednesday.
No Guarantee in German Parliament Either
In Germany, Chancellor Merkel has defended the bank deposit tax, which she pushed through in part for domestic political reasons. Many in her coalition government took issue with the idea of a bailout of Cyprus, alleging that much of the Russian money on the island is laundered, or is parked there so the oligarchs can avoid paying taxes on it. Around one-third of the money in Cypriot banks belongs to foreigners, led by Britons and Russians. The bailout levy is meant to force those foreigners to share the burden of stabilizing the country's finances. "It's a good step that certainly made our agreement to aid for Cyprus easier," Merkel said of the tax.
Easier, perhaps, but in addition to a difficult vote in Nicosia, the deal will also require approval by the parliaments of the other euro-zone members -- including Germany, where a majority in the Bundestag is also not yet certain. The federal parliament could take up the issue and give preliminary approval as soon as Thursday. Finance Minister Schäuble plans to have the issue officially settled and approved by parliament in April.
The center-left opposition Social Democrats (SPD) and Green Party have always voted with the conservative government on previous euro-zone bailouts. But the federal elections scheduled for this fall could influence the parties' votes. They have long been looking for a way out of the multi-party bailout alliance, which enjoys much more consensus among politicians than it does among average voters. The opposition could claim the agreement in Brussels doesn't do enough to fight money laundering and tax dodging, using that as an excuse to vote "no."
Dissent Within German Government
Merkel would still have her own majority in parliament, even if the SPD and Greens reject the Cyprus deal. But even within her coalition, there have been a few dozen "no" votes on previous euro-zone bailouts. Some conservative lawmakers have already announced their opposition. And Finance Minister Schäuble may have a difficult time explaining why he wants to save the country from financial collapse when just weeks ago he voiced doubt that a bankruptcy in Cyprus would have a major affect on the euro zone.
Parliamentarian Frank Schäffler, a member of Merkel's junior-coalition partner, the Free Democratic Party (FDP), echoed that sentiment in an interview with the website of the business daily Handelsblatt. "I won't go along with the perversion of the term 'solidarity' in Europe," Schäffler said. "If things continue as they are, we'll soon be bailing out Andorra and San Marino because they have such close economic ties with other crisis countries like Italy and Spain." The tiny countries of Andorra and San Marino use the euro currency, but are not in the EU and thus are not official members of the euro zone.
Schäffler's criticism isn't unique in his party, either. FDP parliamentary floor leader Rainer Brüderle said he expects the question of whether Cyprus is indeed systemically relevant, or "too big to fail," to be "clearly and comprehensively" presented.
Calls to Exempt Small-time Depositers
German Foreign Minister Guido Westerwelle (FDP) has also reportedly criticized the deal. Sources told SPIEGEL ONLINE that Westerwelle said at a party meeting on Sunday that "It would have been smarter to exempt small-scale savers" from the bank deposit tax. He also said certain legal prerequisites for the bailout, like the sustainability of the country's debt and its "systemic relevance" to the euro zone, have not yet been made clear.
Although Berlin played a key role in pushing the demand for the partial expropriation of accounts in Cyprus, Finance Minister Schäuble on Sunday took pains to distance Germany from the decision to also apply a levy to small-scale savers. He said both Berlin and the IMF had sought to respect the EU's deposit insurance program, which secures the savings of accounts with up to 100,000. But the rules do not protect depositors against the kind of tax to be imposed. In an interview with German public television, Schäuble said it had been the decision of the Cypriot government, the European Commission and the ECB to hit small-scale savers with the levy.
The first step in approving the Cyprus bailout still lies in Nicosia. President Anastasiades has been aggressively lobbying for the deal, with all its painful conditions. He argues that there is no alternative other than an uncontrolled bankruptcy. Without fresh cash on hand, Cyprus would be unable to pay its bills as soon as May, potentially leading to its exit from the euro zone and incalculable consequences for the rest of the currency union.
European Parliament President Martin Schulz, a German member of the SPD, pointed to a possible compromise that would appease some of those opposed to the bailout deal. He suggested on Sunday that account holders with less than 25,000 in the bank be spared the tax -- an idea already supported by the SPD leader in the German parliament. But getting the 17 euro-zone leaders to agree on the current deal was hard enough, and bringing everyone back to negotiations could be an enormous challenge.
And yet that may be precisely what happens. The German financial daily Handelsblatt reported on its website Monday that talks have reopened between the Cypriot government and its euro-zone partners because of the fierce resistance to the wealth tax among virtually all parties in the country. The newspaper said Cyprus's euro-zone partners are considering modifying the terms of the deal and that a conference call may be held among finance ministers to approve a modified bailout package.
On Monday, both the Wall Street Journal and French news agency AFP reported that the Cypriot government and the international creditors were considering revisions to the levy that would reduce the tax imposed on normal savers to 3 percent.