Cyprus savers face 40% haircut as Germans put das boot in

Thousands of ordinary Cypriots remain locked out of their savings as the EU imposes yet more drastic fiscal measures on the beleaguered nation.

by Rebecca Burn-Callander
Last Updated: 19 Aug 2013

Yet more trouble for the Mediterranean 'paradise island'. The EU has confirmed that it will seize up to 40% of all savings over €100,000. This is an extremely punitive figure, and there’s nothing that people can do about it. 

The banks remain closed, and could remain so for the foreseeable future (ministers say they could open in a couple of days but we’ve heard that before). All in order to protect Europe’s monetary union. But it is a move that could instead create untold damage. 

The EU’s treatment of Cyprus is like that of a capricious parent, giving junior a token handful of lunch money (the original bail-out), only to demand that he share his measly half a sandwich with all his big brothers and sisters. Germany, the biggest of the brothers, intends to take a huge bite. He has been propping up this family for years, anyway. But only if the school bully, Russia, doesn't scoff it all.  

Germany’s influence over Cyprus’ fate cannot be overestimated. With its national elections looming in September, the two opposing political parties are both trying to curry favour with their increasingly impatient voters by putting the screws on Cyprus. ‘Aussehen!’ they say, ‘we’re not letting this one take the mickey out of us. This one’s not getting something for nothing.’

The problem is that while no one could accuse the Germans of moral turpitude for refusing to pour Germany’s hard-earned savings into the vaults of bent Russian tax avoiders, you can’t punish one without punishing the Cypriots too. Talk of this being the model for future bailouts has got everyone rattled.

Alas for Cyprus, it has leapt out of the frying pan and into the fire. The bail-out conditions it is now forced to settle for are far worse than those originally rejected by ministers under Plan A. The bailout has been touted as Cyprus’ salvation – but at what cost? An immediate collapse of up to 20% of GDP is almost certain. Unemployment is set to soar to up to a quarter of the population. The one bright spot on the horizon for the country is its natural gas reserves. But Cyprus itself will be too glutted with debt to extract and transport the stuff and will be forced to rely on a ‘friendly’ European partner to act as middleman, creaming most of the profit off the top, of course. 

And if Cyprus, one of the smaller periphery nations in the eurozone, can cause such trouble – even to the undoing of the single currency, imagine what could happen if Spain or Italy spiraled back into debt? EU policy-makers need to tread very carefully over the coming weeks and months. The mistakes made now could be felt for generations.

‘Birthplace of Aphrodite’ may no longer be the first thing to spring to mind when one thinks of Cyprus in years to come. It could be 'the place where the monetary union first began to unravel'...

Image: 'bank vault' at BigStockPhoto

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