Greeks who have deposits in local branches of Cypriot banks have been assured by the Finance Ministry that that their money will not be taxed after the Eurogroup decided that savings in Cyprus should face a one-off levy as part of the country’s bailout.
However, reports suggest that the Greek branches of Bank of Cyprus and Cyprus Popular Bank are set to be absorbed by a lender in Greece as early as next week.
Nicosia agreed at a meeting of eurozone finance ministers to impose a 9.9 percent tax on deposits above 100,000 euros in Cypriot banks and a tax of 6.75 percent on smaller deposits from March 19. Depositors will be compensated by receiving equity in the banks.
The levy will generate 5.8 billion euros and pave the way for the country to receive a 10-billion-euro bailout from the eurozone and the International Monetary Fund.
The news of the agreement was greeted with shock in Cyprus as recently-elected President Nikos Anastasiades and his economic advisers had said they were against the idea of a depositor tax.
Anastasiades is due to convene his cabinet and meet with rival political leaders on Saturday evening and address the nation on Sunday.
Presidential candidate Giorgos Lillikas called for a referendum to be held on whether Cypriots were willing to accept the tax on deposits. Failing that, he said that snap presidential elections should be called.
Lillikas also said he was in talks with economists about creating a plan for Cyprus to leave the euro and return to the Cypriot pound.
The general secretary of Cyprus’s Communist Party (AKEL), Andros Kyprianou, said his party is considering advising Anastasiades to call a referendum or to pull Cyprus out of the eurozone.
From Saturday morning, Cypriots queued at banks to withdraw money and some ATMs ran out of cash to dispense to customers.
However, Greek Finance Minister Yannis Stournaras said that depositors with money in Cypriot banks based in Greece would not be affected by the deposit tax.
“The branches of Cypriot banks in Greece are totally excluded from the Eurogroup’s decision on Cyprus,” said Stournaras. “The stability of the Greek banking system is safeguarded.”
Reports on Saturday suggested that the Eurogroup decision has caused Greek authorities to speed up their assessment of a plan for the liabilities and assets of Cypriot banks in Greece – the Bank of Cyprus and Cyprus Popular Bank – to be transferred to the Hellenic Postbank.
Cypriot Finance Minister Michalis Sarris confirmed after the Eurogroup meeting that the Greek units of Cypriot banks would be transferred to a lender in Greece.
Cyprus is under pressure from the eurozone and IMF Cyprus to downsize its banking sector. The size of the banking sector in Cyprus is more than eight times the size of the country’s economy.
Nicosia has been asked to reduce the banking sector to the EU average, which is 3.5 times the size of the economy, by 2018.
Sources suggested that officials from the Bank of Greece and the Greek bank privatization fund, the Hellenic Financial Stability Fund (HFSF), were in talks on Saturday with a view to the absorption of the Cypriot banks in Greece being completed by Tuesday.
The Greek branches of Bank of Cyprus and Cyprus Popular Bank have an estimated 13.5 billion euros in deposits and 20 billion euros in loans.