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Cypriot savers have been queuing at cash machines – after waking up to the news that Brussels plans to enforce a levy of up to 10 percent on bank deposits as part of a bailout deal.
The Eurogroup and the International Monetary Fund (IMF) agreed a 10 billion euro rescue package for Cyprus, which is teetering on the edge of bankruptcy, late on March 15.
The deal includes a one-off levy on Cypriot bank deposits to raise six billion euros.
German Chancellor Angela Merkel, at the helm of the EU’s largest economy, explained why the radical measure makes sense: “We said: people who have their money in Cyprus’ banks have to contribute to saving Cyprus. So everyone who has more than 100,000 euros in his or her account will be taxed by almost 10 percent, by 9.9 percent.”
Merkel added, “In so doing, the people responsible will contribute – not only tax payers from other countries. And that is correct in my opinion.”
There will also be a tax of 6.75 percent on smaller deposits.
The levy’s due to take effect on March 19, although the deal still has to be approved by the parliaments of several eurozone nations, including Cyprus.
The island nation, which has one of Europe’s smallest economies, is the fifth country to turn to the eurozone for aid during the region’s debt crisis. It follows Greece, Ireland, Portugal and Spain – which asked specifically for help for its banks.