On Saturday, Cypriots were looking at the possibility of having the government freeze their bank accounts and take a portion of their savings, without even giving them the time to rush to the bank, take out all their cash, and blow it on the large quantities of Zivania they're going to need to drown their sorrows in.
Pretty annoying, but at least they could console themselves with the thought that it was for a worthy cause, i.e., cleaning up after the awful investment decisions of the idiot finanacial sector that ruined everything for everyone.
The president of Cyprus, Nicos Anastasiades, emerged from meetings with Europe’s Troika (made up of the EU, the European Central Bank, and the International Monetary Fund) and made the announcement that ruined everyone's weekend.
Financial services are big business in this small island, and Cyprus was days away from seeing the collapse of Laiki Bank, one of its largest lenders, which would have triggered a run on the country’s remaining banks.
With the lowest corporate tax rate of anywhere in the world that isn't "officially" a tax haven and lax enforcement of money laundering regulations by national authorities, Cyprus is home to a large amount of Russian rubles turned euros. It is thought by some that the new tax is an attempt by Germany, who these days finance the European project, to give Moscow a slap across the chops.
The imposed deal would have seen the EU and IMF give Cyprus 10 billion of the 17 billion euros it needs to keep its capital wheels turning. The remainder would have been made up by the levies on personal accounts—with the government planning to claim 6.7 percent of bank accounts with less than 100,000 euros in them and 9.9 percent from bank accounts with more than 100,000 euros in them. An increase in the corporate tax rate would have also helped keep Cyprus's head above water.
On Tuesday, the Cypriot parliament voted the plans down (even Anastasiades's own party abstained in the vote) as alternative solutions were sought, including proposals from Russian investors to purchase the troubled banks. These negotiations led nowhere, however, and on Friday the parliament reconvened to prepare the ground for the introduction of a modified version of the original plan.
The expected compromise is believed to have scrapped the tax on people with less than 100,000 euros in their bank accounts, hitting those with more than that amount with a 15 percent tax. Alongside this, Friday saw the parliament pass laws to discourage depositors from removing their money from Cypriot banks en masse and prevent the feared run on the banks when they are due to reopen their doors next Tuesday.
It's likely that in doing so, they had one eye on not pissing off the public, who, understandably, were not too happy about Troika’s plan to take a chunk of their money away. On Monday, 1,000 people marched from the parliament to the presidential palace in central Nicosia, while most resisted the temptation to take to the streets, choosing instead to picnic for the religious holiday Green Monday, which marks the first day of Lent. The following day, a crowd of around 10,000 rallied in front of the country’s Parliament until legislators had rejected the proposals.
I went along to join up with the protesters to gauge their reactions to what is happening inside their country.
Paris Mavronikis, a 26-year-old lawyer said he saw the deal as nothing more than orchestrated theft. “Cypriots don’t have the IQ to understand what’s going on,” he said. “Anastasiades is just a yes man of Troika. He doesn’t give a fuck about Cypriot citizens. Unfortunately, Cyprus will go bankrupt and Cyprus will see that we have no friends in the EU. Anastasiades is just helping Germany.”
Many Cypriots see the Russians as long-standing friends, acting in their interests when leaders in the West are happy to sell them out. Mavronikis believes the EU’s proposals were motivated by a desire to move business out of Cyprus and into the Western European countries.
“The Russians have always helped Cyprus,” he declared. “They helped us become one of the leading financial centers, so why should we throw them away? We’re throwing investors out of Cyprus. Germany is the biggest export country in the EU, so it is better for them to keep our economy down. I’m not saying they’re bad but they’re exploiting the situation.”
There are 70 billion euros in bank deposits in Cypriot banks. Of that, 24 billion are thought to be from Russian depositors, so it was no surprise to see many Russians attending the protests.
Andryanova Natalie Patsalidou, stood quietly watching events through dark glasses. She works in the financial services industry, having moved to Cyprus from Russia over ten years ago.
“The whole Russian community here is absolutely furious,” she said. “Since the announcement of the tax, I have spent all my days replying to emails from clients in Russia who are telling me that as soon as they have the opportunity, they will move all of their money out of Cyprus.
“This is going to have a devastating impact on my business here, but where can I go? I have lived here so long it’s my home,” she added.
As a 73-year-old retiree, Phillipe Joannou, can lay claim to having witnessed all of Cyprus’s postindependence history. For much of that time, it was from afar as, like many Cypriots, he left home to work abroad. Returning to live out his autumn years, he stood to lose a hefty slice of his retirement fund if the proposals went through but was determined his country should not be brought to its knees by a group of smarmy spivs in smart suits.
“I don’t mind giving my money if it will help my country,” he said. “I am a retiree and earned my money in South Africa. I don’t have a pension here, so will lose a lot of money, but if the government wants to take 20 percent of what I have, that’s OK if it means we can do this on our own. It’s better than having Troika come here every three months to take more and more.”
Andriano, a 26-year-old retail worker, had been one of the first protesters to arrive at the parliament on Monday morning. She was pretty angry that her president had come back with a deal that seemed to work against the interests of everybody in the country.
“We haven’t given the government these rights, and we feel this was a preordained decision,” she said. “Anastasiades said he wasn’t going to take our money and now look at what he’s doing. It will devastate the private sector and limit our ability to pay back our debts. Our government is acting as an agent of Germany and EU but not as representatives of the Cypriot people.”
As with many of the protesters she wasn’t worried that she would lose money, as she didn’t have a lot of savings for the government to lay claim to, but she was more concerned about the precedent that could be set. “I’m worried about the consequences this will lead to in the future,” she stressed. “It will create a vicious cycle. We are disappointed as it’s not a good solution for us.”
Lisa Thoukidides is an American married to a Cypriot and has lived on the island for over 20 years. She said that she and her husband had feared Cyprus would face a financial crisis last year and moved most of their money to an account in another country. “They’re saying it’s OK to rob bank accounts,” she said with exasperation. “If it happens here, which other places will be next?”
She hopes the influence financial institutions have on politicians will come under greater scrutiny. “There are a lot of people responsible for what’s going on here, but on top of everything, it’s the bankers,” she said. “They rule the EU. Everybody’s taking orders from the bankers, our debt is their profit. I’m afraid. I won’t lose much money, but that’s not the point. This is against human rights, and we’re supposed to be a democracy. These politicians should be ashamed of themselves."
With the plan scrapped, what comes next is still to be seen. Parliament is having more talks to work out how to solve the whole shitstorm. In the meantime, the government is doing its best impression of George Bailey in It's a Wonderful Life—ordering that that banks remain closed until next Tuesday, knowing that if they reopen without a large injection of funds, they’ll be bankrupt within hours as desperate Cypriots hurry to stash their cash under their beds. At the moment, this seems like the least terrible option.
Follow Nigel (@nigel_oconnor) On Twitter.
More stuff about how the financial system is a complete fucking mess: