- FTSE 100 falls more than 1% after markets open in wake of Cyprus deal
- Savers will lose up to 10% from accounts under unprecedented settlement
- Move prompts fresh fears the eurozone could be on the verge of break-up
- A parliamentary vote on controversial bank deposit levy has been postponed
- Russia considering restructuring existing loan to Cyprus to bail out country
- European bank shares fell by more than two per cent amid potential crisis
By HUGO GYE
Stock markets tumbled this morning as investors reacted to the unprecedented raid on bank accounts in Cyprus.
A parliamentary vote on the controversial bank deposit levy has been postponed, according to local media.
The move was intended to ensure the stability of the island state’s economy, but instead there are fears it could plunge Europe back into crisis.
The FTSE 100, which soared to a five-year high in recent days, fell by more than one per cent after markets opened, with banking shares particularly suffering.
At 9am, the index stood at around 6,420, down more than 60 points.
Asian markets also fell, with Japan’s Nikkei ending the day down by 2.5 per cent.
European bank shares also fell more than 2 per cent, as traders warned that the bailout meant it was ‘no longer taboo to touch deposits’.
Traders are worried that the precedent set by the Cyprus move could spark an exodus of capital from other fragile European economies and jeopardise the region’s tentative recovery.
Unlike the previous rescues for Greece, Portugal, Ireland, and Spanish banks, the proposed Cypriot bailout is the first one that dips into ordinary people’s savings.
In exchange for €10billion (£8.6billion) in rescue money, there will be a one-time tax of 6.75 per cent on all bank deposits up to €100,000 and 9.9 per cent over that amount.
The bailout package, which has still to be finalised, involves the International Monetary Fund, European Central Bank and European Union
In response to cries of outrage, Cypriot president Nicos Anastasiades was last night trying to amend the bailout tax to limit the pain for small depositors.
One plan suggested tilting more of the tax towards those with deposits greater than 100,000 euros.
But this plan elicited an angry response from Russian president Vladimir Putin, due to the number of Russian investors on the island and significant business links between the countries.
A Kremlin spokesman said that Putin felt a levy would be ‘unfair, unprofessional and dangerous’, with the country considering extending an existing €2.5billion to help bail the island out.
A Cypriot government source told Reuters that the introduction of a tax-free threshold for smaller bank deposits was under discussion but had not yet been agreed.
The euro zone has indicated that changes would be acceptable as long as the return of around six billion euros is maintained.
‘It is up to the government alone to decide if it wants to change the structure of the contribution (from) the banking sector,’ said European Central Bank policymaker Joerg Asmussen, who was pivotal in the weekend negotiations.
‘The important thing is that the financial contribution of 5.8 billion euros remains,’ he said.
Approval in Cyprus’ fractious 56-member parliament is far from a given. No party has an absolute majority and three parties say outright they will not back the tax.
Michael Hewson, senior analyst at CMC Markets, said: ‘If European policymakers were looking for a way to undermine the public trust that underpins the foundation of any banking system they could not have done a better job.
‘Not only is it in complete contravention of the deposit insurance rules agreed by all EU countries in October 2008, and an absolute PR disaster, but it opens up a Pandora’s box of all possibilities with respect to precedent and future measures in other EU countries that find themselves having to ask for help in the future.’
However, a senior advisor to German chancellor Angela Merkel said the move was necessary to reduce the burden placed on richer European countries.
Michael Fuchs, deputy chairman of the ruling Christian Democratic Union, told BBC Radio 4’s Today programme: ‘I have to go to my constituency and explain to my voters why we are willing to lend more than €3billion to Cyprus.
‘I don’t think this is fair to my voters.’
In the bond market – often the most reliable guide to euro zone stress – safe haven German Bund futures shot up while Italian equivalents dived, suggesting some concern that Cyprus could infect its larger neighbours.
Banks in Spain and Italy were hard hit today, with Unicredit down 5.2 per cent and Intesa Sanpaolo, Santander and BBVA all down about 4 per cent.
Barclays, as well as France’s BNP Paribas and SocGen, lost more than 4 per cent.
Some analysts have said that the spillover from Cyprus could be limited due to special circumstances for the Mediterranean island, including the large size of its bank sector relative to its economy, analysts said.
The change prompted one bond trader to comment: ‘The crisis is back.’
Thousands of British expats are set to lose their savings after being denied access to cash machines following the shock move.
George Osborne said last night the Treasury will help out military staff and officials. But it is thought 60,000 other Britons, including holiday homeowners and expats, will lose out.
They are thought to have about £1.7billion in Cyprus’s banks – exposing them to a potential levy of at least £115million – or an average of £1,900 each. In yet another eurozone crisis:
- Cypriot banks banned online transfers and emptied cashpoints to stop withdrawals;
- The levy could be automatically taken from accounts as early as Wednesday;
- British tourists were told to ensure they had multiple sources of money;
- The chief minister of the euro area refused to rule out similar levies elsewhere;
- Analysts said the raid could fall foul of the European Convention on Human Rights.
‘TAKE MULTIPLE MONEY SOURCES’
Tourists travelling to Cyprus have been told to ensure they have access to multiple sources of money.
The Foreign Office last night changed the travel advice section on its website in light of the financial chaos.
Britons are advised not to rely on credit or debit cards alone, as locals queue at cashpoints to empty their accounts, but also to take cash in combinations of euros and sterling.
One million British tourists visited Cyprus last year – half of all foreign visitors.
Tourist spending from Britons alone makes up 5 per cent of the Cypriot gross domestic product.
The Chancellor pointed to the country’s crisis as evidence that the Coalition should not reverse its own policy of fiscal austerity.
‘That is an example in Cyprus of what happens if you don’t show the world that you can pay your way,’ Mr Osborne said.
‘That is why in Britain we’ve got to retain the confidence of world markets.’
UKIP leader Nigel Farage said British taxpayers were being asked to pay for a ‘disgraceful euro-larceny’. ‘Outrage is a word overused in political debate, but hardly covers this,’ he added.
Amid mounting chaos, the Cypriot parliament postponed a vote approving the deal and was reported to have announced a further bank holiday on Tuesday – and possibly another on Wednesday – to keep banks closed.
Mr Anastasiades needs to get the legislation ratifying the deal through parliament before banks reopen or face a run on accounts.
But the scale of revolt against among MPs has thrown his efforts into disarray. If the government cannot win support for the package, the country is expected to crash out of the single currency.
Archbishop Chrysostomos, the country’s religious leader and a former government supporter, was reported to have called for calm, but insisted Cypriots would never forget Europe’s behaviour. In his Sunday sermon, he thundered: ‘This is a villainy of Europeans. Cyprus must as soon as possible leave the eurozone.’
Britons who are paying a heavy price
Chris Drake: The former BBC Middle East correspondent, who retired to Cyprus, stands to lose several thousand euros because of the raid.
Mr Drake, 70, said that as a result, no one would trust that their money was safe in a Cypriot bank ever again.
‘I’m furious with myself,’ he said. ‘I had so many opportunities to move my money abroad but was taken in by all the promises that any attempt to raid my savings was a red line not to be crossed.
‘Experts said it was against the law. Now, I’ve lost several thousand euros. As someone who is retired, the money in my account is all I have to live on for the rest of my life.
‘What’s really upset people is that they’ve been lied to. They were told that their money was safe and that they shouldn’t move it and then they announce this.
‘Everyone’s accounts are frozen and the ATMs have no money. Some people are struggling to get enough cash together to buy food and water.
‘Had people been told that the money was essential for bailing out the country, they may have seen things differently. Instead, they just feel that they’ve been robbed by the Government.’
Mr Drake, a bachelor, who retired to Limassol, said that he thought people in Cyprus would be very reluctant to trust banks as a result of the crash and would invest elsewhere.
He added: ‘But there are plenty of other people with hard luck stories worse than mine.
‘I have a London Cypriot friend who just sold his house and after paying off all his debts put the remaining 350,000 euro into a bank here while he decided what to do with it.
‘In the meantime he treated himself to a holiday in Thailand and is still there. He’ll have the shock of his life when he hears the bad news.’
Stella Steward: She stands to lose around £2,000 of her life savings to the ‘disgusting’ levy.
Mrs Steward, 66, a partner in a wedding planning business, moved to the Mediterranean island from St Albans, Hertfordshire, nine years ago.
‘There was no warning that this was about to happen and we are all in shock,’ she said.
‘What irritates the ex-pat community is that there are quite a few islanders who keep their money “under the mattress” and don’t pay the normal taxes.
‘Perhaps if they had played by the same rules as the rest of us the country might not be in the mess it is’.
Mrs Steward, who lives in Paralimni, a town in the south east of the island, spoke to the Daily Mail before joining the annual bank holiday town carnival.
She and her friends were armed with banners to protest at the levy.
‘There was no warning that this was about to happen and we’re all in shock.
‘What irritates the ex-pat community is that there are quite a few islanders who keep their money “under the mattress” and don’t pay the normal taxes.’
One banner proclaimed: ‘Dick Turpin and the Cyprus government have a lot in common’, while a second banner stated: ‘Cyprus government is making clowns of us’.
‘What’s really upset people is that they’ve been lied to.
‘They were told that their money was safe and that they shouldn’t move it and then they announce this.
Dee Mannerings: The 64-year-old moved to Cyprus with husband Mick, 65, from Rainham, Kent, in 2002.
Mrs Mannerings, who runs a wedding planning business in Cyprus for Britons with Mrs Steward (see above), said the levy was akin to stealing.
She said: ‘Who gave them the right to take our money?
‘Both of my parents were born in Cyprus. I love the country but I don’t like what’s going on at the moment.
‘A lot of the ex-pats have gone back to Britain because they cannot afford to stay here any longer. They have just left their properties for the banks to repossess.
‘Something needs to be done. Why should the government be allowed to take money out of people’s savings?’
The couple, who live in a three-bedroom villa with a swimming pool at Sotira, near Ayia Napa, said they had tens of thousands of pounds at risk of being seized under the plan.