Cyprus Bailout: Savers Lose Money In EU Deal

Anyone with savings in a Cyprus bank will lose some of their money under a ground-breaking bailout deal agreed by European finance ministers.

Bank customers will pay a levy of up to 9.9% on their savings, a charge which will raise nearly 6bn euros (£5.1bn).

Cyprus is the fifth country to seek a bailout following Greece, Ireland, Portugal and Spain but the terms of the deal are a radical departure from previous schemes.

Finance ministers have agreed to lend the indebted island 10bn euros but in return the public will be forced to forfeit part of their savings.

Savers with more than 100,000 euros (£86,500) in the bank will be charged a one-off levy of 9.9%. Those with less will be charged 6.7%.

It will apply to everyone from pensioners to Russian oligarchs, who are alleged to have billions stashed away in what officials say is a bloated Cypriot banking sector.

Private investors will also face a second hit under a "withholding tax" imposed on interest on bank deposits

Banks have stopped electronic transfers but cash machines are working

More than a third - 37% - of cash held in the Cypriot banking system belongs to non-residents and the country has a large British ex-pat community.

Queues of people gathered at cash machines on the island on Saturday as they tried to withdraw their money ahead of the move.

And the country's cooperative banks had to shut their doors after seeing a rush of savers keen to protect their money.

Savers could apparently withdraw money but were not able to carry out electronic transfers.

British ex-pat David Symonds, who lives in Limasol, told Sky News: "Everybody was surprised. We were assured only a few days ago that the haircut on the deposits was a red line for the government.

"When we learned that it might become a possiblity we were told it would only be on deposits above 100,000 euros. Now of course we know it affects everybody."

British Cypriot Andy Georgiou, 54, moved his life savings to Cyprus last year after selling his home in London.     

"I am extremely angry. I worked years and years to get it together and now I am losing it on the say-so of the Dutch and the Germans," he said.

Andri Menelaou, 25, had thought anything below 100,000 euros was protected by the state and said: "I don't have much but I don't see why I should pay for bank mistakes."

The move is expected to generate 5.8bn euros (£5bn) for Cyprus, which first applied for a bailout in June 2012.

Banks have already taken steps to freeze the required amount in deposit accounts and parliament is due to vote on the levy on Sunday.

Nicholas Papadopoulos, head of parliament's Financial Affairs Committee, said: "My initial reaction is one of shock.

"This decision is much worse than what we expected and contrary to what the government was assuring us, right up until last night."

Angela Merkel and Cyprus's president Nicos Anastasiades in Brussels

Mr Papadopoulos, Vice-Chairman of the Democratic Party, which is a coalition partner in government, said he did not want to predict how parliament would vote.

"If we go ahead with this, there is a great risk it is not the end. The banking system will still face instability because it will face a significant capital flight," he said.

Cyprus was badly hit by the Greek financial crisis because of its close links to the country.

Its two largest banks saw combined losses of 4.5bn (£4bn) euros - equal to a quarter of the island's gross domestic product.

The rescue package was agreed after 10 hours of talks in Brussels and was significantly less than the 17bn euros (£14.7bn) asked for.

As part of the deal, the government will also have to hike corporate tax to 12.5% from 10% and sell off state assets to help balance the public finances.

Dutch Finance Minister Jeroen Dijsselbloem said: "As it is a contribution to the financial stability of Cyprus, it seems 'just' to ask a contribution of all deposit-holders."

He added: "The challenges we were facing in Cyprus were of an exceptional nature."

French Finance Minister Pierre Moscovici said: "We did what we had to."

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