Cyprus bank levy: UK to compensate troops and government workers

[dipsydoodle]

The UK will compensate any British troops in Cyprus hit by plans to introduce a bank levy as part of a £9bn EU bailout, the chancellor has said.

British government workers would also be protected, George Osborne said.

Under the plans, people in Cyprus with up to 100,000 euros in the bank would have to pay a one-time tax of 6.75%; those with more than that 9.9%.

The move could affect many of the 3,000 UK military personnel in Cyprus, and tens of thousands of expatriates.

http://www.bbc.co.uk/news/uk-21820237

[catnhatnh]

1. But some animals are more equal... N/T

[dipsydoodle]

2. The division might be

that our military and civil servants based there have their tax assessed in the uk whereas ex-pats may not do so. I'm guessing that both groups are paid via Cypriot banks out of necessity.

[pennylane100]

3. I do not understand why the Europen Union is doing this.

It is the most impossible situation to put a country in. I do not know how Cyprus got itself in this mess but asking people with money in their banks savings accounts to pay more than everyone else is just wrong. If were a graduated tax the included everyone, with people at the top paying more, that would be a lot more equitable.

[dipsydoodle]

4. It is partly a graduated tax

with the highest load being born by non residents - mainly Russians. The tax referred to is actually be re-negotiated today with different bands.

Maybe what's insensitive is the way in which it has been expressed regards the population. They seem to need c. €7 billion on top of the €10 billion from the ECB. Roughly €31 billion held in bank accounts is Russian. So - they could've just hit them with say €3 billion and increased general taxation by €4 billion to cover he rest. Across a population of a million that would be €4000 / head. Doing that would be even worse for their own population than the current proposal.

This issue isn't to simply bail banks - its to help them being there at all. As is with no liquidity there must be little or no credit available. Try functioning with no banks as no banks would probably mean no credit cards either. The government could nationalise affected banks and may in fact do so but I'm not sure of the degree to which that would now help.

[fedsron2us]

5. As I understand it the levy is not strictly a tax as the money is not transferred to the govenment

Instead it is a cram down or savings write off. Since deposits are technically liabilities on a banks balance sheets then it is supposed to strengthen the banks credit position. The slight problem is that it will almost certainly cause a bank run once the doors of these institution reopen that will wipe out these banks. Even if they do survive they are unlikely to be getting much in the way of new deposits. Moreover, it is a bizarre form of restructuring when depositors who are in theory the last group of people who should lose money in a bank administration are hit before bond and equity holders. The policy of hitting investors holding insured deposits (ie less than 100000 Euros) is a disaster and risks causing bank runs in Spain, Italy and Portugal should there be even a whiff of a similar bank restructuring in those countries Worse it preempts and undermines existing attempts by the EU to set up an orderly EU wide regime for winding up failed banks

[dipsydoodle]

6. I see your point

but doing it that way simply saves moving funds round in a circle. Part of the object is to recapitalise their banks. In the absense of available credit their economy will collapse anyway.

There is no sign at present of runs elsewhere - just chatter on the possibilty of subject by the media.

Spain had already overcome the problem by nationalising seven of their banks and then borrowing €31 billion to recapitalize them. Ireland had also did this last month :

LONDON — Ireland sealed a deal with the European Central Bank on Thursday to ease the crippling cost of its public bailout of failing banks, keeping the country on track to wean itself from international emergency loans.

By overhauling repayment of the debts it incurred to rescue its banks, Ireland will be on track by the end of 2013 to be able to borrow money on the open market the way most other governments do. It was effectively shut out of those markets at the end of 2010, when the gaping hole ripped into its budget by the bank bailout forced Dublin to go cap in hand to its European partners and the International Monetary Fund.

http://articles.latimes.com/2013/feb/07/world/la-fg-wn-ireland-deal-bank-bailout-20130207