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Cyprus

Germany wanted ‘drastic haircut’

Michalis Sarris

GERMANY wanted a “drastic haircut” on bank deposits, and “some EU quarters” sought the destruction of Cyprus as a financial centre”, former finance minister Michalis Sarris said yesterday.

Testifying again before a committee of inquiry, the ex-economy chief said Cyprus had virtually no friends at the first Eurogroup meeting in March as it fought in vain against a proposal to tax both insured and uninsured savers.

“We were in a dramatic situation. The Germans sought a drastic haircut on banking deposits. They believed that because Cypriot depositors received high interest rates, [a haircut] could be seen as taxation in retrospect,” he told the panel.

Asked whether he believed that some of Cyprus’ euro area partners wanted to destroy the island’s image as a financial centre, Sarris replied: “Yes.

“Some quarters had in mind the destruction of Cyprus as a financial centre,” Sarris said. He added that the Germans believed that situation was “not natural” and must be related with money laundering.

“They [the Germans] wondered how such a small country, like Cyprus, with no industrial output, could have such prosperity.”

The International Monetary Fund believed that both Laiki Bank and Bank of Cyprus were insolvent. Cyprus’ lenders also refused a request by the government to bring to the negotiating table representatives of the Cypriot banks. “No one supported us…but Germany and her allies [Austria and Finland] were the harshest,” he said in his account of the March 16 Eurogroup meeting.

There, eurozone finance ministers hammered out an agreement that Cyprus would tax deposits above €100,000 at 9.9 per cent and those under €100,000 at 6.75 per cent.

The deal, reached over a weekend of grinding talks, was rejected by the parliament here two days later – leading to a subsequent agreement that saw the winding down of Laiki, the island’s second largest lender, and its folding into Bank of Cyprus.

Just prior to the vote in parliament, Sarris said, officials from the IMF and the European Commission contacted the government suggesting instead sparing insured depositors by raising the levy to 15.6 per cent on big savers.

The former minister reiterated that the raid on insured deposits was the brainchild of the Europeans.

“This illegality was theirs,” he said.

At the first Eurogroup, the Cypriot delegation tried to argue that taxing people’s savings amounted to theft of property, and was in breach of both the constitution and the European Convention on Human Rights.

But according to Sarris’ account, in a display of cynicism and ruthlessness our European partners countered that “constitutions are drafted and can be modified.”

The troika’s response was that countries’ individual arrangements are not their concern, he said.

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