Developing

Cyprus 'To Spare' Small Savers From Bank Tax

Cyprus appears set to protect savers with less than 20,000 euros (£17,100) in their accounts from a proposed tax on bank deposits amid a bailout backlash.

Ahead of a planned parliamentary vote on the issue, due at 16.00 GMT, it is understood Cypriot lawmakers are considering a draft Bill imposing a 6.75% tax on all savings between 20,000 and 100,000 euros and 9.9% on all savings over 100,000 euros.

However, it has been suggested by a government spokesman that the proposals may not even go to a vote today as other options are explored.

The seizure of deposits, in return for shares in the lenders, is meant to raise 5.8 billion euros (£4.96bn), which is part of the country's rescue.

The move to potentially exempt small depositors from the confiscation followed pressure from eurozone finance ministers as the unprecedented tax demand sparked a public outcry not only in Cyprus but within the wider single currency area.

The finance ministers, known as the Eurogroup, said they favoured a higher 15.6% tax on richer savers in order to protect those with less in their accounts.

A statement from the group's president Jeroen Dijsselbloem said: "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 100,000 euros."

Sparing more modest savers in favour of the higher rate on bigger deposits, would not impact on the overall amount of the bailout - 10bn euros (£8.6bn) - the group said.

On Saturday the Eurogroup told debt-ridden Cyprus it would not give it a bailout unless it recouped some of the money it needed from savers.

The scheme had the potential to affect thousands of Britons who had either moved to Cyprus to live or had money saved in Cypriot accounts.

Russia, whose citizens are thought to have up to $30bn of their cash tied up in Cypriot accounts, was left furious by the proposal.

UK Foreign Secretary William Hague said Britain had been "separated" from contributing towards the bailout, adding that 3,000 Britons in the country would not suffer in the proposed raid on bank savings.

It is believed, however, that many British Cypriots may have millions in accounts that are not protected by UK rules.

It was also unclear whether British troops serving in Cyprus who had set up large savings accounts would be able to escape the tax.

Cyprus had been due to vote on the levy on Sunday but it was first pushed back until Monday and then Tuesday.

Banks were closed in the country on Monday because of a bank holiday, which prevented people withdrawing their money but cash machines across the island were emptied.

Branches - and the local stock exchange - will remain shut until Thursday to prevent people removing all their cash while the authorities decide what to do.

The decision to target bank accounts stunned Cypriots, and police sealed off parliament as about 400 people staged a noisy protest outside, aggrieved that their small island of one million people should be singled out for such treatment.

It is the first time within the EU that it has been proposed to tax savers in a country to pay for the failings of their government.

The euro and stock markets fell on concern that developments in tiny Cyprus could reignite the financial crisis in the 17-nation eurozone.

If Cyprus does tax large savers heavily there are fears that money could flood out of the country as two thirds of deposits are from abroad.

It is estimated by its central bank that Cypriot banks stand to lose more than 10% of their deposit base within a matter of days if the levy is imposed.

Some reports have suggested an alternative will form part of the discussions in the run up to Tuesday's planned parliamentary vote.