ATHENS – The Eurogroup has decided to give Cyprus more flexibility over a bank levy which is part of its bailout conditions, a Greek finance ministry source said on Monday after a teleconference of euro zone finance ministers.
The Eurogroup has agreed that depositors with less than 100,000 euros should be protected, the official said, on condition of anonymity.
He said Cyprus should still raise 5.8 billion euros from the levy as planned, and that the Cypriot parliament would vote on the rescue package on Tuesday.
Meanwhile, in a statement earlier on Monday the Cyprus Finance Ministry said the Eurogroup’s decision supported by the ECB, the European Commission and the IMF, was a one-off, extraordinary measure that will not be repeated under any circumstances.
It is added that the levy will be imposed on the credit balance of deposits accounts as of Friday, March 15, 2013.
The Ministry of Finance said the decision was “very difficult and painful” for all, but added that under the circumstances, the implementation of the decision is necessary in order to end uncertainty in the economy and to ensure the country’s rescue.
“Without the levy, the sovereign debt would have undoubtedly be non-sustainable, and no financial assistance would have been given for the rescue of the Cyprus people” it is added.
The Ministry of Finance says moreover it recognizes the severity of the situation. “In order to avoid more painful consequences, such as the foreseen collapse of the banking sector, we have decided, with a strong sense of responsibility, to accept the imposition of the levy on deposits for the rescue of the country”.
It is also added that with the imposition of the levy, the Ministry ensures the country’s stability, the smooth operation of the economy and the return of Cyprus and its people to the path of growth and prosperity.
Moreover it notes that future generations will not be burdened with the unbearable weight of the re-payment of a loan, similar to the ones granted to other member states of the Eurozone.
“At the same time, the chances of a possible second Memorandum of Understanding to deal with the pressing problems of the economy are minimized” the Ministry says.
Early on Saturday the Eurozone agreed on a €10 billion bailout to cover fiscal needs, the restructuring of the banking system and for the support of the economy in general.
The funds will be used to finance the public sector and recapitalize the banks sector for the period 2012-2015.
The one-off levy on deposits initially agreed at Eurogroup level was 6.75% on deposits up to €100,000 per account, and 9.9% on deposits over €100,000.
It is now understood that this rate will change, but it is uncertain whether it will secure a majority in the House of Representatives.
The government has said that shares of banking institutions that will be recapitalized will be offered to depositors.
Provided that the deposits are kept in the banking institutions for a period of at least two years, the shares can be convertible into bonds, the yield of which is to be backed by the expected natural gas revenues, in accordance with a scheme to be determined and issued by the Minister.