The Cypriot government decided earlier today to impose a 6.75 percent tax on bank deposits as high as 100,000 euros ($130,580) and a 9.9 percent levy on deposits in excess of that amount in order to win a European aid package.
The measure, due to raise 5.8 billion euros, is designed to help limit the amount of outside emergency funds for Cyprus to a maximum of 10 billion euros and keep Cypriot debt sustainable. The Cypriot government had previously vowed to protect depositors.
“The exchange of this levy with shares in the banking institutions affected gives an upside potential,” Sarris told reporters in Brussels after euro-area finance chiefs reached the agreement that also includes a planned rise in the Cypriot corporate tax rate to 12.5 percent from 10 percent.
The euro area had refused to exclude the possibility of imposing losses on bank-account holders in Cyprus as a way to prevent its debt from becoming unsustainable while negotiating a rescue program that has been in the works for nine months. Such an element isn’t part of existing aid packages for Greece, Ireland, Portugal and Spain.