E.U. Tax Proposal On Cypriot Bank Deposits Riles Russia
There has been angry reaction in Russia and Cyprus to the E.U.'s proposal to seize nearly 10 percent of large deposits in Cypriot banks, and roughly 7 percent of smaller deposits. That would force Russian oligarchs and ordinary citizens to bear much of the cost of the bank bailout in Cyprus.
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Russian President Vladimir Putin is expressing outrage over a possible new tax in Cyprus. That Mediterranean island is far Moscow but holds billions in Russian money. It's the topic of today's Bottom-line in Business. At the heart of the uproar is a bailout of the banking system in Cyprus. In a first, the European Union is proposing to partly pay for the bailout with a tax on depositors' money.
For more, we turn to NPR's Corey Flintoff in Moscow and reporter Joanna Kakissis in Athens. Welcome to you both.
And, Joanna, let me start with you. What is happening today in Cyprus?
JOANNA KAKISSIS, BYLINE: Well, we've been hearing a lot more from people who were saving for the children's college education, from retirees who are angry that their pensions are being raided. And they are going to lose about 7 percent of their savings because of this tax. So they're calling it legalized robbery. They're still running to ATMs, trying to find one that is working, trying to take out cash.
And the government has declared a bank holiday until Thursday to keep people from running to withdraw all their money. The government doesn't have the votes to pass this tax through parliament today. And that vote could be delayed again. So they're frantically trying to revise the plan to lessen the burden on people with smaller deposits.
E.U. finance ministers now say they would be happy if there were no tax on people with less than 100,000 euros in the bank. They see that this is blowing up in their faces.
MONTAGNE: Right, and on the other end of the spectrum from, you know, pensioners and small depositors, you've got your Russian depositors.
And, Corey, let me bring you in. It turns out that billions of Russian money is stashed in those accounts. What's going on?
COREY FLINTOFF, BYLINE: That's right. Well, the word is off-shore tax haven. Cyprus is to the Russians what the Cayman Islands are to some investors from the United States. It's got low corporate taxes, fairly lax regulations, it's easy for Russians to get dual citizenship there. So for all those reasons, Russian banks and businesses and oligarchs - various individuals - are believed to have more than $30 billion deposited in Cypriot banks. And because those are big accounts, they would be taxed at almost 10 percent. So we're talking about a $3 billion Russian haircut here.
MONTAGNE: So, Vladimir Putin is angry, obviously a lot of money involved. But what really impact does it have on Russia?
FLINTOFF: Well, economists that I talked to said it shouldn't have too much impact. It's really only about one-tenth of 1 percent of Russia's GDP. What it does do though is effect a lot of businesses and individuals who are relatively close to the Kremlin. They would really feel the pain of this. So that's what prompted a very angry response from President Putin yesterday, who called it unfair and dangerous.
And I also think that what's making the Russian officials particularly angry is that they apparently weren't consulted or warned about this before it was announced.
MONTAGNE: And, Joanna, back to you. What would stop people in Cyprus from panicking as soon as the bank do open? As you said, they've got a bank holiday going but eventually they've got to open their doors.
KAKISSIS: Well, the president of Cyprus, and his name is Nicos Anastasiades, is offering bonds linked to revenue from off-shore natural gas reserves to people who leave their money in Cypriot banks for the next two years. And this could be really lucrative 'cause Cyprus is expected to make billions when it sells the gas in the next few years.
The problem is that getting the enterprise on-line actually takes money. Cyprus has terrible relations with Turkey. Turkey invaded the island in 1974 and continues to occupy the northern third of it. And, of course, it doesn't want to pipe the gas to Turkey, which would be the least expensive option. It wants to liquefy the gas and sell it to other countries. And that's going to cost a lot of money that Cyprus just doesn't have it right now.
MONTAGNE: Well, we'll be talking to you more about this in the coming days. Reporter Joanna Kakissis speaking to us from Athens and NPR's Corey Flintoff in Moscow, thanks very much.
KAKISSIS: Thank you.
FLINTOFF: Thank you, Renee. Transcript provided by NPR, Copyright NPR.