On 19 March the chairman
of the board of directors of the Northern Cyprus Banks’ Association (Kuzey
Kıbrıs Bankalar Birliği – KKBB), Mr. Yunus Rahmioğlu, warned banks in Northern
Cyprus not to accept funds coming from the South whose origin is not
known. He said that the South would
undoubtedly experience an outflow of bank deposits held by foreigners, but pledged
that banks in the North would be screening any incoming funds to avoid any
possibility of money laundering.
Rahmioğlu noted
that deposits in the “Greek system” (i.e., the banks of the Republic of Cyprus Russia
He pointed out that
one of the reasons that the European Union wants deposits in the Republic of Cyprus Republic of Cyprus Northern Cyprus economy is very
open to the outside and is constantly fighting against money laundering, it is
crucial that “black money” not be allowed to enter Northern Cyprus at this juncture.
Background
On 15 March the
informal association of eurozone finance ministers known as the “Eurogroup” held
a press conference to announce that it had at long last succeeded in reaching
an agreement with the authorities of the Republic of Cyprus
The video summary
of this press conference published on the Eurogroup’s website succeeds in not revealing
any concrete details on the deal whatsoever, avoiding in particular any mention
of the most controversial point under discussion, the possibility of the
Cypriot government applying a “one-off” tax on bank deposits in Cyprus – termed
a “stability levy” – in order to raise money for its coffers.
Any doubts that may
have remained were dispelled when, on 16 March, the Eurogroup published a
formal statement giving the outlines of the agreement it had reached with the Cypriot
authorities. The statement did in fact
refer to the tax on bank deposits, but in language that implied that it was a spontaneous
initiative on the part of the Cypriot authorities themselves in order to reduce
the size of the total bailout package: “The Eurogroup further welcomes the
Cypriot authorities' commitment to take further measures mobilising internal
resources, in order to limit the size of the financial assistance linked to the
adjustment programme. These measures include the introduction of an upfront
one-off stability levy applicable to resident and non-resident depositors.”
After considerable
unrest in Cyprus Russia Cyprus Cyprus
(The “Eurogroup” is
an informal organization among finance ministers of euro-area countries. The finance ministers meet regularly to
discuss matters relating to the euro, but the Eurogroup in itself exercises no
authority, the authority resting instead with the Economic and Financial
Affairs Council (ECOFIN) of the Council of the European Union.)
18 March 2013
Statement
by the Eurogroup President on Cyprus
The Eurogroup held a
teleconference this evening to take stock of the situation in Cyprus.
I recall that the political
agreement reached on 16 March on the cornerstones of the adjustment programme
and the financing envelope for Cyprus reflects the consensus reached by the
Cypriot government with the Eurogroup. The implementation of the reform
measures included in the draft programme is the best guarantee for a more
prosperous future for Cyprus and its citizens, through a viable financial
sector, sound public finances and sustainable economic growth.
I reiterate that the stability
levy on deposits is a one-off measure. This measure will - together with the
international financial support - be used to restore the viability of the
Cypriot banking system and hence, safeguard financial stability in Cyprus. In
the absence of this measure, Cyprus would have faced scenarios that would have
left deposit holders significantly worse off.
The Eurogroup continues to be of
the view that small depositors should be treated differently from large
depositors and reaffirms the importance of fully guaranteeing deposits below
EUR 100.000. The Cypriot authorities will introduce more progressivity in the
one-off levy compared to what was agreed on 16 March, provided that it
continues yielding the targeted reduction of the financing envelope and, hence,
does not impact the overall amount of financial assistance up to EUR 10bn.
The Eurogroup takes note of the
authorities' decision to declare a temporary bank holiday in Cyprus on 19-20
March 2013 to safeguard the stability of the financial sector, and urges a swift
decision by the Cypriot authorities and parliament to rapidly implement the
agreed measures.
The euro area Member States stand
ready to assist Cyprus in its reform efforts on the basis of the agreed adjustment
programme.
Sources:
Statement
by the Eurogroup President on Cyprus (2013-03-18)
Eurogroup
Statement on Cyprus (2013-03-16)
Video: Summary
of Extraordinary Eurogroup Meeting (2013-03-15)
Eurozone Portal: Eurogroup
Mark Pleas
[contact]
