Under the EU-ECB-IMF deal with Cyprus’ president, obviously with an eye on the previous limit, a levy of 6.75 percent would be imposed on bank savings of up to €100,000, while deposits over this level would be hit with a 9.9 percent tax.
In true EU form, everyone disappeared into a room, locked the doors and came out a little later with a new plan. The hastily revised proposal is now to protect savers below the limit from any tax, but EU finance ministers are proposing Cyprus impose a levy of 15.6 percent on those over €100,000, an attempt maybe to adhere more tactfully to Robin Hood’s philosophy.
Perhaps going without saying, Moscow has been among those most vocal in opposition to that idea, as they hold the largest depositor block among the island’s banks, notably in the greater-than-€100,000-area. The Cypriot finance minister promptly hopped on a plane to Moscow to try to placate his Russian paymasters.
On the markets, the damage is in part already done.
Bank shares across Europe led the drop, as it was realized (regardless of protestations otherwise by the EU and ECB) that if it is ok to impose such a levy today on Cyprus, who could it be tomorrow? Spain? Italy?
With bond auctions coming up this week, it will be interesting to see if the other Club Med countries manage to sell their debt at levels they have enjoyed over recent months; the markets are understandably rattled.
Did anyone honestly think the European debt crisis was settled?