Cyprus - Levy on bank accounts

BAnanas I have joined this thread late on but here is my penny's worth. Cyprus it seems is a peculiar case in as much that there was a raft of fundamental flaws in its administration and one of those was the burying ones head in the sand hoping the problem will go away approach. In regards to money laundering, the government's only response to those seeking answers to questions was that they would consult with the authorities in Russia to determine facts before responding. Russia of course being the suspects in the money laundering allegations. I think I am right in saying that the Island joined the EU in the hope that EU partners would instruct Turkey to end its occupation of the Northern part. It did not address its currency valuation which probably should have been devalued by some 30% or so in order to maintain a competitive edge in its prime industry - tourism. That failure alone has decimated tourism in respect of what was its largest market - Britain and North European countries not in the Eurozone. In addition Cyprus had and still has a bloated Public and Civil Service whose staff are very highly paid and in disproportion to average earnings.
Many other anomolies were, and some still are, in existence such as charging import duties on vehicles imported from other EU states a malpractise that earns more than the fines imposed for doing so and the system which denies individuals title deeds to property they have paid for in full and permits developers to mortgage the home the home that has been paid for in full rendering it Bank's property. All these and many more examples of maladministration not least the payment of very high rates of interest on bank deposits and exceptionally low rates of corporation tax coupled with a reluctance to pay income tax (the system is similar to that in Greece where tax is not taken at source as in PAYE but individuals are invited to declare earnings in order to be taxed - Who in their right mind would?) has led to a massive deficit. Awarding public and Civil Servants a 13th Salary and biannual COLA (cost of living allowance) effectively giving employees a rise in salary twice a year to counteract the effects of inflation. Alongside all this the main utilities and national carrier are state owned and subsidised or solvent due to excessive charges to the consumer.
All this obviously led to a catastrophic failure in finances - unsurprisingly, and the option to secure a bailout similar to others was unsustainable and a non starter. The country would never have been able to pay it back so the option to top slice bank deposits over €100K was arrived at. I personally don't agree with the principle as it sets a dangerous precedent but I don't think there was an alternative given government intransigence in other areas of suggested cuts. The decision will be challenged in the courts I am sure but it must be remembered that it was not the government who imposed the 'haircut' it was the Troika as a condition of the bailout of some €10billion. The alternative would have been bankruptcy, reversion to the CY£ vastly devalued and an almost impossible capacity to service existing loans. A preferable option perhaps to the current and future outlook as in my humble opinion the writing is on the wall and a further bailout may be required in a few years. Property prices are already tumbling, unemployment is rising and foodstuff prices are disproportionately high. British expats are suffering as a result although some have only themselves to blame for trying to make a fast buck and taking out swiss franc mortgages without understanding the implications but overall a sorry state of affairs which in my opinion is waiting to be repeated in a country near you soon!

What a farce everything is.

Well yes, quantitative easing and very low ( non existent ) interest rates is also a form of stealing.
Just read that a plane with one million euro's is on it's way to Cyprus to aid the Armed Forces who now have no access to their monies.

I am trying to picture one million euro's??????

Can see banknotes wafting down from the sky. Like in Walt Disney Films.

What a farce the EU is.

Pogs you echo my feelings exactly. On Matthew Wright's Channel 5 programme today, during the morning paper round up, it was stated that allegedly the rich Russians had prior warning at the week-end about this levy and I believe they removed several billion out of their accounts. As usual the small person will be hit the hardest, I agree with you it's just theft pure and simple. Some on this thread have pointed out that a number of ex-pats are living there taking advantage of the fact that it's a tax haven. I don't want to make any judgements about individuals because I don't know anyone there and wouldn't know their personal circumstances. Although I have heard that some of our troops stationed in Cyprus had put money by, possibly to buy a property there at some stage and they will now only receive "reasonable" compensation from our government, whatever that means.

Whilst I am sympathetic to the German people being in the unfortunate position of having to offer never ending bail outs to less successful economies, nevertheless being the most powerful country by far in the Euro zone they have to accept some culpability in allowing nations that clearly didn't meet the criteria, to be admitted in the first place.

I reiterate your statement Pogs "What is the point of a bank if money can be stolen" I thought there were cast iron guarantees on deposits over £85,000 anyway. If we find out on Thursday the Cypriot government have not backtracked on this, then I think the EU will have allowed a very dangerous precedent to have been set.

It seems outrageous to me that money can just be removed from somebody's bank account - as if people's trust in the banking system needs to be undermined any further.

However, having read a couple of contributions in Guardian Letters today, it made me think about the less obvious ways in which people's savings in the UK have been, and continue to be, depleted. Some methods may be less brazen, but they can be equally damaging.

"I can't help feeling that the Cypriot raid on savings is not entirely different from what political control of interest rates has done to bonsai my retirement money tree in the UK." (Mike Brown, Newcastle on Tyne)

"....We regularly see the pound fall because of the mishandling of our economy ....What is the difference that 10% of savers' money is lost in one way or another?" (Martin Cooper, Bromley)

Posting on both threads, very easy to happen.

I was surprised on monday that the eurozone countries did not suffer a massive fall on the markets and their Bond Yields didn't go up.

This is 'theft' pure and simple. What will the people of the likes of Italy and Spain be thinking. They know they could well be next in line. If not, why not if the eurozone countries are 'All in it together'.

THIS IS CRAZY. I do not care if you hold 100 euros or 1 million euros in you account, it is theft. They have said they are looking at 20,000,00 euros as a starting point now, possibly the Cyprus Government will vote no!.

What if you have sold your home and have your cash in hold?. You are a business person and are holding customers cash in your account?.

WHAT IS THE POINT OF A BANK IF YOUR MONEY CAN BE STOLEN.

It will be interesting to see what the Germans do if they see their Bond Yields rise and the Dax takes a hit. It will be interesting to see what Russia will do as it is a fact they do hold large sums in Cypriot Banks.

Let's see what happens when the Banks open after the holiday. Potential to drag us all down. We are constantly reminded what can and will happen if Governments borrow too much.

Is this the first domino?

I have a couple of older relatives in Cyprus and have limited sympathy really with them. They went there to avoid paying higher tax in UK (plus weather benefits) and enjoy a better quality of life than they feel they would have in UK because labour etc is cheap.

One has had lots of NHS benefits for various ailments as they have British passport and spends some time in UK but keeps money in Cyprus..also to avoid UK inheritance tax. It was a gamble...

I bet it would be very interesting indeed Eloethan given the corruption in the country it is inevitable that those "in the know" will have moved their money just in time and the poor unsuspecting man or woman in the street will be the hardest hit. Yes probably the business owner and self employed dodge taxes (as most of them operate on a cash only basis) but the ordinary working person has also enjoyed low taxes (nil on around £20,000) too. The public sector enjoy gold plated pensions that they have made little or no contribution towards at all. It is obvious that this could no go on forever.

BAnanas the Russians are huge property owners in Cyprus and the Russian government have money tied up there too (although I would suspect they may have been tipped off accordingly). I agree the whole things stinks of greed and corruption right across the board.

You can understand why Germany will not allow this to continue.

Following on from Eloethan, surely the EU would have asked it's member states to conform to certain standards, such as not allowing money laundering. I don't understand all these inconsistencies. Why would other member states want to throw their lot in with a country that allows such dubious practices, the whole thing stinks!

gillybob - yes it would be interesting to see who moved cash out before this was announced. I wonder if anyone will try and get the details.

Surely only the self-employed/business owners could dodge taxes? Those that work for a company or a public service organisation can't get out of paying tax can they - is tax deducted at source in those countries? It seems so unfair that those who have paid their taxes are likely to be the ones hardest hit.

In the light of the apparently widespread knowledge of money laundering, I think there should have been greater exploration as to how people with huge amounts of money in their accounts came by that money. Where were the regulatory authorities?

It just shows you how little control you've really got when the chips are down.

Yes Jess if I had that 'wad of cash' I don't think I would take it to Cyprus

It hasn't gone through yet though, they have delayed the decision until tomorrow.

Just a detail, I think that those with lower savings were 'only' going to lose something in the region of 6%.

Tax havens tend to benefit from being a tax haven don't they, in all kinds of ways. Otherwise they would not do it. Likewise the people that go to live there - they are motivated by the avoidance of tax.
I know someone who went to Sark for this reason - despite the fact that wife had recently had some major treatment on NHS and had a lifelong problem with seasickness! It didn't last long. But it was motivated by not wanting to pay tax to the UK government.
If Cyprus have been allowing this within the euro zone, including ill gotten russian gains, then not hugely sympathetic really.
Of course the poorer people suffer most as 10% of not very much makes a bigger dent in terms of effects on the account holder than 10% of a big stash does to a multi millionaire.
But I have to say, heading off there clutching a wad of cash to buy property when the country has been hovering on the brink of financial meltdown does not sound like the wisest of moves.

The negative interest was only going to apply to the banks not to the people.

I can't imagine that any European who wanted to bank offshore would choose the UK to do so when there are so many places where they would get a much better deal, especially now there is talk of negative interest. I strongly suspect that the pound will remain at its ridiculously low level for some considerable time as a result of the futile quantitative easing – and it wouldn't surprise me if more QE was on the cards.

I thought it was the Germans who wanted the EU to succeed no matter what. Time will tell.

I think the Russian government has funds in there too. So they are not best pleased.

gillybob I wasn't really aware of the fact that Cyprus was a haven for dodgy Russians' ill gotten gains until today. As you say, they quite possibly will have been forewarned about this levy and have moved their money somewhere else.

Although the Cypriot government have obviously been complicit in the mismanagement of their country's finances, I still think it's appalling to take money out of peoples' bank accounts in this way without any warning. It sets a dangerous precedent for the rest of Europe and I imagine there is going to be a run on the banks in the southern Euro zone as a consequence. Whilst I can understand many Germans reluctance to carry on with these never ending bail outs, I think Angela Merkel's decision to sanction this levy is unprincipled. I gather that many Germans would now like to return to the Mark anyway, I think there is an election pending in Germany this year so it will be interesting to see what the outcome of that will be.

Copying my earlier posdt from the other thread as this seems to be the one which is running.

ticktock I don't know if this is a good idea or not but I do wonder what effect it will have on the rest of the Eurozone. Will people move their savings to other countries outside the euro? If they do, will that mean an influx of cash into the UK? If that happens will our savings interest rates plunge even lower? Will the £ gain in value and make our exports dearer? As it hasn't happened before the consequences are unknown but could be dramatic, that is of course if it goes through.

Re: legality, is it any different in principle to the UK taxing our savings at 20% of the interest? I don't know, just posing the question.

Hi BAnanas This enforced bank tax is as a result of one of the conditions imposed on Cyprus following a large EU bailout (£8-9 billion I think). Cyprus has had a long reputation for harbouring the proceeds of Russian crime (money laundering) and Germany are well aware of this therefore they probably see it as a way of getting something back?????

I agree it is a shame for anyone who has only just recently moved to Cyprus (and especially those with large amounts in bank accounts waiting to purchase a home) as they are going to be stung with this levy even though they are not responsible for Cyprus's predicament. I am also sorry for those ex-pats who have lived there a long time too but if this is being imposed on every bank account I don't see why the Brits should be treat any differently after all it was their choice to be there.

One last thing (getting back to corruption) is that I suspect those with the biggest bank accounts will have been forewarned to move their money elsewhere.

gillybob I have no doubt what you say is true, similar to Greece. I just think that this is the thin end of the wedge and it's sets a dangerous precedent. Surely it can't be legal for the Cypriot government to hep themselves to money from it's citizens bank accounts? Perhaps the European Court of Human Rights could come into play here. As far as I know, this idea wasn't mooted to Cypriots and correct me if I am wrong anybody, but I imagine they didn't have the chance to vote on it. Just so undemocratic. I heard about a Briton who had a sizable amount on deposit there pending an imminent house purchase and will now lose some £20,000, or maybe Euros, but nevertheless it's now probably scuppered his plans.

Not sure which of these threads to post on (as don't want to upset anyone)but anyway here goes.....

I am not surprised Cyprus is in this mess. The country is bankrupt and now desperate measures are called for. My DH and I used to spend a lot of time in Cyprus (haven't been for a few years) and have Cypriot friends. The situation they find themselves in has been brought about mainly because of corruption, greed (their words not mine). During our many visits chatting with Cypriot business owners we were told that "anyone in business who pays tax must have a stupid accountant" . They bragged about only dealing in cash (so as not to pay any tax). Over the years the prices have gone up quite drastically and many decisions are made on the back of "back handers" and corruption. Very similar to Greece.

According to my friend in Spain the banks are over-run this morning with English people withdrawing money "just in case" ?

I've already posted on the other one!

When I started this thread I checked to see if anyone else had done so on the same subject, I didn't see anything, perhaps Ticktock and I posted our thoughts simultaneously does happen from time to time, or maybe I just missed hers!