‘Cyprus levy on deposits may have contagious effect’
Despite promises from EU politicians, there’s no guarantee that the citizens in other crisis-hit countries won’t see money written down from their deposits as may happen in Cyprus, Peter Westin, Aton's chief equity strategist, told RT.
Eurozone finance ministers demanded Cyprus pay up to 10 per cent
of their bank deposits in exchange for a €10bn bailout, which has
already resulted in panic across the Mediterranean Island as people
rushed to cash machines to withdraw their savings.
According to the latest proposal, smaller depositors with up to
€100,000 would be taxed at 3 per cent, savers with €100,000 to
€500,000 would lose 10 per cent, while those with more than
€500,000 will see 15 per cent written down.
The Cypriot parliament will vote on the deposit levy on
Tuesday.
Aton's Peter Westin warns that if the unpopular measure goes
forward it may have a contagious effect and repeat itself in other
EU states in economic difficulty.
“Given the fact, that the bank assets are five times the size of
GDP, really, Cyprus needs to come to some kind of a solution. But I
think what people are looking at now is the kind of a strange
demand that the Eurozone is imposing, which is a levy on deposits.
Which means it’s not only the rich Russians, who’ll lose their
money in Cyprus, but also the local population. So, this is quite a
precedent. And the reason is… if they won’t deal with that it’ll
have a contagion effect.”
According to Westin, politicians are “unpredictable" so one
shouldn’t take on faith European MP’s promises the Cyprus deposit
raid won’t happen in other countries.
“Even though we have parliamentarians in Europe saying that this
is a one off. The problem is will the depositors in Italy, Spain
and Greece believe this and will this cause a renewed massive
crisis in Europe? Interestingly, people are looking at the size of
the countries – when Greece hit the headlines, people were saying
Greece is just 2 per cent of the Eurozone’s GDP and it’ll be a
limited isolated effect. But it spread very quickly. Cyprus is
ten-times smaller, but again I think we know that in this case size
isn’t important.”
“In this case the most challenging effect will be diminishing
expectations of other countries. So if there’s a belief among
depositors in other countries than we can have a run on the banks
in these other nations. So far as we’ve heard from Spain there
hasn’t been a major panic as of yet, but I think this remains to be
seen. And this is maybe the biggest fear that it may spread to
other nations.”
The strategist stressed that the recent events have “tarnished
Cyprus as a tax heaven”, adding that it doesn’t mean the Russian
citizens, who keep over $18.3 billion in Cypriot banks, will return
their savings home.
“For now, Russians tend to look abroad for place to put their
money. And those that do that – Cyprus won’t be their best choice
now. But those, who want to put the money offshore will put their
money offshore. Efforts to bring the money back to Russia require a
lot of initiatives from the government. And we’re still at the
starting point of that.”
Westin concluded by saying that Singapore, may replace Cyprus as a
magnet for cash from Russia.
The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of RT.