Cyprus govt in race to ratify shock bank deposit tax

The Cypriot government was in a race against the clock on Saturday to push through a deeply unpopular levy on all deposits in the island's banks that it agreed to in return for a 10-billion-euro ($13 billion) EU bailout.

The government has to get the necessary legislation through parliament to ratify the unprecedented tax before banks reopen their doors on Tuesday after a holiday weekend on the Mediterranean island.

The levy, which is expected to raise 5.8 billion euros, will apply to everyone from pensioners to Russian oligarchs, and angry tweets and comments multiplied on the Internet even though the Brussels agreement was reached too late for Cyprus newspapers.

The government's aim is that the deductions be made from accounts before savers have a chance to withdraw their deposits.

Even Co-operative bank branches, which, unlike the main lenders, usually open for business on Saturdays, kept their doors closed this weekend as their systems were shut down, officials said.

In the island's second city Limassol, one angry would-be customer parked his digger outside a Co-op branch, complaining he had been "deceived" by the government into believing that his deposits were safe.

Government spokesman Christos Stylianides tried to calm shell-shocked Cypriots saying: "The situation is serious but not tragic, there is no reason to panic.

"The Cyprus government had to decide between saving the economy and a disorderly default," he told the state CNA news agency.

Right up to the 11th hour, the government had insisted the bank deposit levy was a red line it would not cross, arguing it would trigger a run on the island's banks.

But it finally gave in in marathon 10-hour talks in Brussels on Friday night as fellow eurozone governments and international creditors made clear it was a condition of any deal.

Those with deposits of more than 100,000 euros will be hit with a 9.9 percent charge. Under that threshold, the levy drops to 6.75 percent.

A "withholding tax" will also be imposed at source on interest earned in Cypriot banks in a further hit imposed in return for the bailout of the island's near-bankrupt government and bloated banking sector.

Centre-right DIKO MP Nicolas Papadopoulos, the son of a former president, told state radio the decision was a "disaster" for the economy and the banking system, which is nearly eight times the size of the economy.

"Before, I thought any decision would be bad for Cyprus but this is a nightmare," Papadopoulos said.

He said the government should have let those banks on the island worst-hit by their exposure to toxic Greek debt -- Bank of Cyprus and Popular Bank -- fold, rather than put the entire economy at risk.

"I want a representative of the government to explain why this is the best solution," he said.

Communications Minister Tassos Mitospoulos told state radio that Cyprus was caught between a rock and a hard place and the outcome was one of damage limitation.

"Our only alternative was for the banks to collapse and a disorderly default the next day," he said.

President Nicos Anastasiades was due to land at the island's main Larnaca airport at 8 pm (1800 GMT) ahead of an emergency cabinet meeting to draw up the necessary legislation, CNA said.

Some ministers already gathered at the presidential palace earlier to hear details of the shock agreement, which also includes a rise in corporate tax from 10 percent to 12.5 percent, formerly another of the government's red lines.

Parliament is expected to convene on Sunday, Antonis Koutalianos of the speaker's office told AFP.

"The Cyprus deal is exactly why I don't keep money in the bank anymore -- Brussels can commandeer your cash, Just like that," one angry tweet posted on Saturday read.

Shaun Richards, who described himself an independent economist, tweeted: "If those in charge in the Euro area actually wanted to start a bank run this charge on depositors in Cyprus should do the trick."

But analyst Sony Kapoor cautioned savers in Cyprus banks that there was no point queuing up at ATM machines now.

"Dear Cyprus bank depositors, the time to line outside ur banks was last week, no point now" he tweeted.