After eight months of talks on a bailout package, triggering fears of a bankruptcy in the tiny island-state that could reignite the debt crisis of the Eurozone, its ministers of Finance agreed at the beginning of the weekend on a rescue package of €10 billion. But a part of the deal was also that the owners of small deposits (up to €100.000) have to pay a special tax of 6,75%. This caused a run over the weekend of Cypriot pensioners, mothers, students and small business owners to ATM machines for withdrawals from their bank accounts. Cash payments were possible until the machines were emptied. Banks are closed in the weekend and today as well, a Bank holiday. The Government has also put an emergency measure in place to prevent angry citizens from withdrawing their savings, which is set to continue until the issue is solved.
Cypriot President Anastasiades said after the meeting in Brussels, that he had no choice but to accept a painful tax on the country’s bank deposits in return for international aid. On tv he said that the bailout deal ‘was certainly not the solution we wanted but the least painful’ and that he is in talks to limit the effects of the bailout on small savers.
A fear now is that savers in other nations facing economic difficulties may also start withdrawing bank deposits. The US economist and Nobel Prize winner Paul Krugman wrote on his New York Times blog: “it is as if the Europeans are holding up a neon sign, written in Greek and Italian, saying ‘time to stage a run on your banks’!”. However, German Finance minister Wolfgang Schäuble welcomed the Cyprus plans, saying it would ‘help bring about a return to financial stability in the Eurozone’. More than ever it is Germany’s Europe…
By: N. Peter Kramer
