Cypriots rush to banks in wake of bailout levy | Europe| News and current affairs from around the continent | DW | 16.03.2013
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Cypriots rush to banks in wake of bailout levy

Cypriots have rushed to local banks to drain their accounts following a bailout agreement that includes a tax on bank deposits. Cooperative banks have shut their doors in response to the rush.

Cypriots headed to local cooperative banks and ATM machines Saturday in an effort to protect their savings from a new tax. The deal, agreed to as part of an international bailout, was brokered early Saturday morning.

Eurozone lenders have agreed to give Cyprus a rescue package worth at least 10 billion euros ($13.08 billion) becoming the fourth country to receive a sovereign bailout.

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Cypriot depositers to pay up for bailout

However, in exchange for the rescue fund, Cyprus agreed to levy a one time tax of 9.9 percent on deposits of over 100,000 euros held in the country's banks. A tax of 6.7 percent will be applied to anything under 100,000 euros. The levy is expected to generate 5.8 billion euros.

The cooperative banks, which represent about a fifth of the island's banking sector, remained open only for about an hour before shutting down to prevent a run on withdrawls. However, people continued to have access to funds through ATMs.

The levy must be ratified by parliament before banks open on Tuesday, as Monday is a public holiday.

International help

"The assistance is warranted to safeguard financial stability in Cyprus and the eurozone as a whole," Eurogroup President Jeroen Dijsselbloem told reporters after the meeting early Saturday. Cyprus' GDP makes up less than 0.2 percent of the eurozone's overall output.

The bailout fund gives Cyprus less than it had originally requested. In mid-2012, the eurozone country asked for international aid of at least 17.5 billion euros ($22.3 billion), the majority of which would go towards rescuing its ailing banks, which were affected by the sovereign debt restructuring in neighboring Greece last year.

However, because the loan would have amounted to nearly the size of Cyprus' entire economy, creditors lowered the number to a more manageable amount of debt.

A fresh round of talks began earlier this month after presidential elections had stalled the negotiation process. The government in Nicosia had been pressing for a solution after announcing that its financial resources would run out in May.

Cypriot Finance Minister Michael Sarris is scheduled to travel to Moscow on Monday to renegotiate the terms of a 2.5-billion-euro loan from Russia, which he would like to push back five years to 2021.

hc/jlw (Reuters, AFP, AP, dpa)

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