Cyprus became the latest euro zone domino to teeter in 2012 just when the worst of the crisis appeared to be over. In March 2013, a compromise rescue plan backed by euro zone finance ministers called for Cyprus to wind down one largely state-owned bank, Popular Bank. The raid on Popular Bank was intended to raise most of the 5.8 billion euros that Cyprus was required to raise as part of the bailout.
Cypriots shocked as euro bail out includes 10pc tax on bank accounts
Residents of Mediterranean island run on ATMs after government agrees to €10b bailout that includes unprecedented levy on bank accounts
Residents of Cyprus reacted with shock yesterday after the government agreed to a €10 billion (HK$101 billion) bailout that includes an unprecedented levy on all bank deposits.
The debt rescue package, agreed with the euro zone and International Monetary Fund earlier in the day in Brussels, is significantly less than the €17 billion Cyprus had initially sought.
But it includes €5.8 billion to be raised through the bank deposit levy of up to 9.9 per cent, which will apply to everyone from pensioners to Russian oligarchs and tens of thousands of British expats.
At the same time, a "withholding tax" would be imposed on interest on bank deposits, and Cyprus will have to hike corporate tax to 12.5 per cent from 10 per cent and sell off state assets to help balance the public finances.
The levy will see deposits of more than €100,000 hit with a 9.9 per cent charge when lenders reopen their doors after a scheduled public holiday tomorrow. Under that threshold and the levy drops to 6.75 per cent.
Though it was reached too late for Cyprus newspapers, and other forms of traditional media were caught unawares, the bailout deal prompted some to queue up outside banks to withdraw cash from ATMs.
Cypriot bank officials said that depositors can access all their money except the amount set by the levy. But that hardly assuaged people who continued to withdraw cash from ATMs until the machines ran out, unsure what or how much would be taxed. Officials said that withdrawing funds yesterday would not reduce anyone's levy.
Analyst Sony Kapoor cautioned that there was no point in pulling out cash, tweeting: "Dear Cyprus bank depositors, the time to line outside ur banks was last week, no point now."
The levy came as a shock to most people following strict assurances from Cyprus' President Nicos Anastasiades that he would not accept a deal which required depositors to share in the losses.
Cypriot and European officials feared that forcing depositors take a hit would undermine investors' confidence in Cyprus and other weaker euro zone economies and even possibly lead to bank runs.
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."
A flood of angry comments flowed on the internet.
"The Cyprus deal is exactly why I don't keep money in the bank anymore," one person wrote on Twitter. "Brussels can commandeer your cash. Just like that."
Co-operative bank branches, which, unlike the main lenders, usually open for business on Saturdays, kept their doors closed as their systems were shut down.
"They call Sicily the island of the mafia," said a pensioner. "It's not Sicily, it's Cyprus. This is theft, pure and simple."
Ministers were in a race against the clock to thrash out legislation and push it through parliament, which the speaker's office would convene today.
"I wish I was not the minister to do this," Cypriot Finance Minister Michael Sarris said in Brussels. "Much more money could have been lost in a bankruptcy of the banking system or indeed of the country."
Cyprus is the fifth country to secure a debt rescue package from its euro zone partners in the three-year debt crisis.
The price tag for Cyprus is small compared with two rescues for Greece worth some €380 billion, Ireland's €85 billion, Portugal's €78 billion and €41 billion for Spanish banks.
Associated Press, Bloomberg, Reuters, Agence France-Presse