Deposit account holders need not fear a Cyprus-style tax on their savings, according to Enterprise Minister Richard Bruton.
Mr Bruton said the detail of the EU’s bailout of Cyprus would be designed to avoid contagion elsewhere in the euro-region. Initially Cypriot resident and non-residents were to be levied 6.75% on bank savings of less than €100,000, and 9.9% above that benchmark. With rates in flux, these levies could move to 3.5% and 12.5% respectively.
“Junior bondholders are clearly in the firing line in this case,” Mr Bruton told RTÉ Radio One yesterday. “The deal has yet to go to the Cypriot parliament. There is an indication of flexibility in relation to the deal, but the detail has yet to be finalised.
“There are different models in different countries. In Ireland, the original bank guarantee gave a blanket protection. We had €64bn in recapitalisation of the banks, which has a knock-on for citizens, as we know only too well. We had the debate over what burden should bondholders carry.
“We now have full protection for everyone up to €100,000. Where the cost [for Cypus] has to be shared out, a lot of thought has gone into balancing that to make sure there is a fairer [burden] sharing than occurred in the Irish case.”
Mr Bruton said Ireland will not change its corporate tax rate, even though Cyprus is expected to increase its rate as part of the bailout. He said Ireland’s export-led recovery required that a low corporate tax rate be maintained.
Fianna Fáil’s Michael McGrath said the burning of depositors in Cyprus sets a dangerous precedent across the eurozone and makes a mockery of plans for an EU-wide banking union.
“The imposition of a so called ‘tax’ on deposits sends a clear signal ordinary depositors are now in the firing line. Despite the comments from senior EU officials that Cyprus is a unique case, this move will undermine the confidence of investors in the eurozone and cause alarm to savers across Europe.
“Spanish savers will now ask whether they will have to take losses if billions more euros have to pumped into Spanish banks. Irish depositors will legitimately ask how safe their money is if it transpires that Irish banks need more money to absorb losses on mortgages and business loans.”
EU economics and monetary affairs commissioner Olli Rehn welcomed the bailout deal, and sought to ease concerns about any contagion. German finance minister Wolfgang Schäuble said the plan would help bring financial stability.
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