Crisis in Cyprus stuns Eurozone

Tim Wallace
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CYPRIOT President Nicos Anastasiades was last night locked in eleventh hour talks with Brussels in a bid to soften a radical plan to impose a tax on Cypriot savings accounts, as part of a deal to fund a €10bn (£8.5bn) EU bailout.

Markets are set to react for the first time this morning, with analysts warning that the hit to depositors could reignite the Eurozone crisis and weaken banks across Southern Europe. The euro dipped more than one per cent against the dollar in trading yesterday afternoon on fears of contagion across the region.

Politicians are trying to limit the impact on savers with less than €100,000 – who thought they were covered by the EU’s deposit guarantee scheme. They are being taxed 6.7 per cent of their deposits, while those with above €100,000 would lose 9.9 per cent.

The lower figure may now be cut to three per cent or even zero, with those that hold over €100,000 losing up to 15 per cent of their cash to make up the difference. Almost €6bn will be taken from savings accounts under the plan, with depositors unable to remove cash over the long bank holiday weekend, which has been extended through tomorrow to avoid runs on the island’s banks.

Anastasiades, who said Cyprus was facing its worst crisis since the Turkish invasion in 1974, insisted last night that he was battling to ease the terms of the proposed tax.

“I continue to fight with the Eurogroup to amend their decisions in the coming hours to limit the impact on small depositors,” he said.

The UK government yesterday vowed to reimburse any losses incurred by the 3,000 British service personnel and civil servants that are based on the island, though it couldn’t quantify the cost. The Financial Services Authority said that UK customers with deposits at the UK operations of Laiki Bank and Bank of Cyprus – the two with a presence in Britain – would not be affected.

But around 50,000 Britons who have savings in Cypriot accounts may still be hit by the levy. The Foreign Office urged all UK travellers to Cyprus to take several forms of payment with them to ensure they weren’t left without money, including euros, sterling and credit cards.

As news of the bailout terms broke on Saturday, scared savers across the island lined up to empty cash machines and protesters gathered outside government buildings.