Cyprus Rejects Europe’s Demand for Deposit Tax

By: Submissions

Brett Chatz writes: The economy of the Island of Cypress is flailing.  An immediate 15.8 billion-euro bailout for the small country was requested of its European allies.  The answer from the economically frail European Central Bank (ECB) was a two-tiered compromise.  The initial requirement included a substantial tax on Cyprus bank deposits, which would raise 5.8 billion euros.  The second element of the plan had the ECB tendering 10 billion euros to alleviate the financial crisis of Cyprus.

Vote of the Cypriot Parliament

With a forceful crowd of protestors noisily voicing their concerns outside the parliament building, the Cypriot parliament voted to negate any deposit tax.  The vote saw no politician raising a hand in favor of the tax.  Against the tax were 36 members of parliament; abstentions totaled 19.

The tax would have raised the 5.8 billion-euro demand through a graduated tax on savings.  That tax would consist of 6.75% on 20,001 to 100,000 euros in bank accounts.  An even larger 9.9% tax would have been taken from deposits in excess of 100,000 euros.

Armed police had guarded the building housing the parliament, prepared for a riot.  Cypriot nationals were not the only protestors.  Throughout the world, the public was worried that the tax would jeopardize the security of bank account savings globally.  Further, the prospect of the tax raised fears that an extensive bank run in Europe might develop. 

The Next Step

The Cypriot parliament has concluded that the negative aspects of the tax far outweigh the positive.  Germany and several other European nations think otherwise.  The reality of the situation brings the ECB and Cyprus back to square one.  For the present at least, the ECB has confirmed that it will continue to supply needed funding to the Central Bank of Cyprus.    
   
Nicos Anastasiades, the Cypriot president, is well aware that the ECB might cut off funding at any juncture.  Thus a desperate attempt is being made by Michael Sarris, Finance Minister of Cyprus, to establish a funnel of cash from Russia.  A loan between the two countries currently exists whereby Cyprus is indebted to the extent of 2.5 billion euros.  The present discussion in Moscow entails an extension of the term of the current loan, or in the alternative, the tender of a new loan.

The end of the ECB line has not yet been reached.  New negotiations are on deck, while the banks and stock market of Cyprus remain closed.  In the meantime, optimistic investors have caused a slight rise in the European (SXXP) stock market and the euro has gained a bit of strength.  Those investors foresee a continuation of ECB economic assistance to the beleaguered country. 

Cyprus represents only 0.5% of the European economy.  Nonetheless, the impact of a Cypriot failure would be symbolic and far-reaching according to Laurence D. Fink, the CEO of the largest asset manager on the globe, BlackRock Inc. (BLK).

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The popularity of Binary Options is rising steadily.  That rise is primarily due to the simplicity of choosing between just two options; easy risk management, as the payout is specified in advance; and the trade is short term, allowing for fast and exciting action. 

About the author: Brett Chatz was born in Johannesburg, Gauteng, South Africa. He attended the internationally accredited University of South Africa, where he completed the prestigious Bachelor of Commerce degree, with Economics and Strategic management, as his major subjects. In concert with the primary degree, he completed several Bachelor of Arts courses, most notably English poetry and literature. In addition he enrolled at the University of Haifa in Israel to complete a post-graduate year in the Bachelor of Arts discipline. Brett is also a contributing author for the widely lauded binary options brand, Banc De Binary.

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