The president of Cyprus has submitted legislation that would seek to tax personal deposits to pay for government losses.
The president , Anastasiades, has just been elected a month ago. He is set to meet the Parliament tomorrow to get consensus for his plan.
The measure has been prompted by the ECU bank's imposition of adherence to the plan to tax personal deposis in lieu of the bailout guarantee. This marks the first of the European countries having to make citizens pay out of their personal deposis to make good on the bailout payments.
Anastasiades needs only nine more votes for his measure to pass.
This development sets a dangerous precedent for other European countries, who could be similalry asked to fork over their personal deposits to pay for the government overspending.
Euro finance ministers in Brussels agreed on March 15 to tax bank deposits in Cyprus, as a precondition for a 13 billion dollar bailout that in essence will only aid banks, and is not a package that will help the country's finances.
Anastasiades justified his plan by saying that the decision was, in all effect, made for Cyprus by the Euro ministers.
On their part, the European Central Bank has said it would stop providing liquidity for one of Cyprus' main banks if the measure was not apporved. The only alternative, the president say, is a chaotic bankruptcy of the country itslef.
The measure, if passed, will tax depositors at the rate of 6.75%, on deposits of less than 100,000 euros, and 9.9% for deposits over that limit. The tax is supposed to provide 5.8 billion euros, which would reduce the size of the bailout.
The news has sent depositors scrambling to get their money out, and the banks in turn have frozen everyone's assets.
The Cyprus crisis was precipitated by Greece's collapse last year.
Source: Bloomberg 3.17.13
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