Anastasiades says eurozone left Cyprus with no other choice than to accept deposit tax

Cypriot President Nicos Anastasiades said on Saturday that his government was presented with a fait accompli in its negotiations with the eurozone, forcing it to accept a one-off tax on depositors as part of its bailout deal.

Cyprus agreed to a one-off tax on deposits, 9.9 percent for those above 100,000 and 6.75 percent for those under 100,000 at a Eurogroup meeting on Friday. The levy will raise some 6 billion euros and paves the way for Nicosia to receive a 10-billion-euro bailout.

In a written statement he issued on Saturday afternoon, Anastasiades said his government had been pressured into the decision.

“In the extraordinary meeting of the Eurogroup, we faced decisions that had already been taken and came across faits accomplis,” he said.

“On Tuesday, March 19 we would either choose the catastrophic scenario of disorderly bankruptcy or the scenario of a painful but controlled management of the crisis, which would put a definitive end to the uncertainty and restart our economy,” added the recently elected president.

Anastasiades will issue a televised message to the Cypriot people on Sunday.

In Athens a Greek Finance Ministry official confirmed to Kathimerini on Saturday that “all three Cypriot banks active in Greece [Bank of Cyprus, Cyprus Popular and Hellenic] will have their Greek branches absorbed by a Greek credit institution.”

He stopped short of naming the Greek lender to absorb them, although source say this may be state-owned Hellenic Postbank.

Here is Anastasiades’s statement in full:

It is well known that the deep economic crisis and the state of emergency in which the country has found itself did not come about in the last fortnight since we have undertaken the administration of the country.

The state of emergency and critical nature of the times do not allow me, as they do not allow anyone, to embark on a blame game.

In the extraordinary meeting of the Eurogroup, we faced decisions that had already been taken and came across faits accomplis through which we were faced with the following dilemmas:

On Tuesday, March 19 we would either choose the catastrophic scenario of disorderly bankruptcy or the scenario of a painful but controlled management of the crisis, which would put a definitive end to the uncertainty and restart our economy.

A possible choice of the catastrophic scenario option would have the following consequences:

1. On Tuesday, March 19, immediately after the holiday weekend, one of the two banks in crisis would cease to operate, since the European Central Bank, following the decision already taken, would terminate the provision of liquidity. The second bank would suspend its work, and neither could avoid collapse. Such a phenomenon would instantly lead 8.000 families to unemployment.

2. The State would be obliged to compensate depositors in response to the obligation regarding guaranteed deposits. The capital required in such a case would amount to about 30 billion euros, which the State would be unable to pay.

3. A proportionate amount corresponding to the deposits of thousands of depositors for deposits over 100.000 Euro, would be led to a vicious cycle of asset liquidation, and these depositors would suffer losses of over 60%.

4. Such an uncontrolled situation would push the whole banking system into collapse with all the attendant consequences.

5. Thousands of small and medium enterprises, and other businesses would be driven to bankruptcy due to their inability to trade.

As a result of the above, the service sector would be led to a complete collapse with a possible exit from the euro. That, in addition to the national weakening of Cyprus, would lead to devaluation of the currency by at least 40%.

The second choice was the controlled management of the crisis, through the decisions taken and which can be summarized as follows:

1. Ensuring the liquidity of the banks and the rescue of the banking system through their recapitalization.

2. Rescuing 8.000 jobs in the banking sector and thousands of others which would be lost as a corollary of not maintaining the operations of banks.

3. Total rescuing of deposits, with just the exchange of a small percentage of savings with shares of the two banks. Currently, these shares do not have their full value, but with the economic recovery they will repay most it not all of the amount that will be cut.

4. This option results in a drastic reduction of public debt, makes it manageable and sustainable and relieves future generations from the burden of repayment.

5. It saves provident and pension funds and avoids taking other tough measures such as wage and pension cuts that were put on the negotiations table.

6. It avoids further recession and the risk of the vicious circle of a second memorandum.

We are not aiming to gloss over the situation. The solution chosen may be painful, but it was the only one that would allow us to continue our lives without adventures. It’s a decision that leads to the historic and permanent rescue our economy.

In the next few hours we will all have to take responsibility. Tomorrow I will address the Cypriot people.