The government of Cyprus has drafted another plan to submit to the country’s parliament today that will exempt small savings account holders from the proposed raid on all deposits in the country’s banks. Under the latest proposal, savers with less than €20,000 (about $26,000) in their accounts will not pay the 6.75% levy that the government had agreed to over the weekend.
Under the original plan, all accounts under €100,000 would have paid the 6.75% tax; accounts greater than €100,000 will still pay a 9.9% levy as outlined in the original agreement.
The government needs to raise €5.8 billion as a precondition to receiving a €10 billion bailout package from the European Central Bank. By exempting small account holders and holding the other rates steady, the Cypriot government may not hit that target.
As for the big depositors — primarily large Russian shell companies that use Cypriot banks to hide assets — this is just a cost of doing business. They can live with a 10% tax. If they had been forced to pay for the whole disaster, say at a rate of 30%, they would have withdrawn all their funds and taken the party someplace else. According to Pawelmorski, some funds are already headed for Latvia.