The Guest Blog

By Stavros Papagianneas

The Great Train Robbery is the name given to a £ 2.6 million (£ 46 million = € 53,8 million today) train robbery committed on 8 August 1963 at Bridego Railway Bridge in Buckinghamshire, UK. This is peanuts in comparison to what happened with Cyprus last weekend.

Stavros Papagianneas

After markets closed for the weekend on Friday 15 March, following an extended discussion the Eurozone finance ministers agreed on an € 10 billion bailout for Cyprus which includes all Cypriot bank account holders handing over up to 10 % of their savings.

In a radical change from previous aid packages, Eurozone ministers forced Cyprus’ savers, to pay up to 10 % of their deposits to raise almost € 5,8 billion. People with savings of under € 100.000 will pay a one-off levy of 6,75 %, which rises to 9,9 % for those with larger deposits.

Residents of Cyprus have reacted with shock to the government agreement with the Eurozone. Many Cypriots, having contributed to bailouts for Ireland, Portugal and Greece – Greece’s second bailout contributed to a debt restructuring that blew a hole of several billions in Cyprus’s banking sector – are terrified by EU’s treatment.

A flood of angry comments flowed on the internet.

“Where is the solidarity that we are preaching ? Instead we are pushing a small MS in difficulties, down the cliff. A question to colleagues in the Commission: Do you believe that after the decision of the Eurogroup on Cyprus there will be any pro Europ. left there? “ EU Commissioner Androulla Vassiliou wrote on Twitter.

The decision to impose an unprecedented tax on Cypriot bank deposits was a painful one, but it was the only option to avoid bankruptcy of the state, said President Nicos Anastasiades last Saturday.

Government spokesman Christos Stylianides added that the Cypriot delegation came under immense pressure on the issue of a haircut last Friday night, with German Minister of Finance Wolfgang Schäuble and IMF Managing Director Christine Lagarde initially demanding a 40 % cut on deposits.

What was previously declared a red line by the President of Cyprus and Finance Minister Michalis Sarris became a reality. For the first time in the Eurozone, a haircut would be imposed, not on state creditors or bondholders, but on everybody with savings in any bank of the island, including small depositors with less than € 100.000 on their accounts.

However, deposits with less than € 100.000 are insured by the state in the EU. In theory, should the banks collapse before the levy is imposed, depositors’ savings would be secured.

The levy on bank deposits is expected to come into force on Tuesday 19 March, after a bank holiday on Monday. Banks in Cyprus took steps to prevent electronic money transfers over the weekend and most ATMs were not working as many ran out of notes because of panic withdrawals.
President Nicos Anastasiades said that savers will be offered shares in Cyprus banks guaranteed by future natural gas revenues, as compensation for the raid on their savings. But it is unlikely to appease those who have lost money.

This dangerous and unprecedented measure to hit the man in the street – including 59.000 British residents of Cyprus and 3.500 UK troops based on the island – would send shock waves through the EU. People will ask themselves who is next and if the Eurozone is using Cyprus as its Guinea Pig.

When the banks reopen on Tuesday morning, people will probably start moving their money out of the country. And what happens if the Cypriot bank run spreads everywhere else as other countries like Italy, Spain, Greece or Portugal realise they too are expendable on the altar of mollifying voters and investors in other countries.

European leaders are essentially inviting their fellow countrymen to make a run on the banks, declared Paul Krugman, the Nobel Prize-winning economist and New York Times columnist.

Making bank depositors bear some of the costs of a bailout had been taboo in the EU, but EU officials said it was the only way to save Cyprus’s financial sector. The loss of depositors is now a reality.

However, Eurozone decision still needs to be approved by the Parliament of Cyprus. The debate and vote has been postponed until 18.00 on Tuesday 19 March. It had originally been planned for Sunday, then for Monday afternoon.

Nicosia is now considering the introduction of a tax-free threshold for smaller bank deposits in an attempt to win over MPs hostile to the bank levy. Eurogroup finance ministers will hold a conference call on Monday evening,

Judging by the statements made by the political parties on the island the approval of the relevant bill is not certain. It is clear that negotiators of the bailout in Brussels underestimated the reaction in Cyprus. The small country feels it is being blackmailed by the most powerful.

Anastasiades’s party DISY, with 20 seats in the 56-member parliament, needs the support of other factions for the vote to pass. It is unclear whether even his coalition partner, the Democratic Party (DIKO), would fully support the levy.

Three parties: AKEL (Communists), EDEK (Socialists) and the Cyprus Green Party have already said they will not back the plan. A rejection of the levy by lawmakers could push Cyprus into bankruptcy and possibly out of the common euro currency.

Stavros Papagianneas is Independent Communications Consultant ( He worked as Information and Communication Officer at the European Commission and as Press Officer at the Permanent Representation of Cyprus in Brussels.

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  1. Previous state bailout occurred through a transfer of government money to banks. Public money is raised through taxes, just to remember. The important difference is that in this case we are talking about a lump-sum transfer, not a loan. It is not fully clear to me why they made this decision…

  2. Didn’t we have the same situation with Iceland ? With Icelandic people refusing to pay for baks’ mistakes ?
    Anyway, the C.Parliament has rejected this stupid plan…

  3. There are two separate issues regarding the debt crisis in Cyprus, which many ignore or are ignorant of.
    Firstly, the Cypriot banks were bankrupted by the EU imposed Greek debt haircut. So, you might say, they should not have invested so heavily in Greece, although this investment could probably be viewed as a form of patriotism – helping fellow-Greeks. Even so, they are not unique in unwise investment. Interestingly the amount set aside for the bailout covers bank recapitalisation – a priority for the EU leaders?
    Secondly, the rest of the bailout loan, much smaller than the first (above), is needed to run the State. This is the fault of Christofias and the Akel party who spent money like water, and indulged in much nepotism, giving handouts/well-paid posts to supporters of their party. This is the portion the EU is demanding Cypriots pay for.
    Now, since the EU is responsible by its actions for the first issue, of banks needing recapitalisation, I feel that morally it should not be regarded as part of the bailout, but rather as an apology and a compensation for their unwise actions regarding the Greek haircut. They started the contagion.
    Of course, stinging small investors, however fleetingly, made them look like amateurs and rather stupid ones at that. This total lack of thought of consequences is what is so frightening. One always hopes/expects one’s leaders to have more intelligence than oneself!, otherwise why are they our leaders?
    The constant German mantra of laundered Russian money in Cyprus is also worrying. It has been repeated so often one begins to think they have a pathological hatred of Russians. Or is it merely an obsession with winning the German elections in September? If the latter, they should remember that parochial concerns do not fit at all well with also leading the financing of the EU. They have now left the world holding a vivid and dramatic picture of the battle between David and Goliath.

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