It looks like Cyprus is not going to march to the EU’s orders without putting up some kind of fight. A draft bill has been handed down to the Cypriot parliament which would exempt the smallest depositors from the proposed savings taxes. Brussels was blindsided, says the WSJ:
European officials in Brussels were surprised by Nicosia’s unilateral move. In a conference call Monday night, euro-zone finance ministers were given “no heads-up” on the new rate, a European official said. “They are playing poker.” A second official confirmed that ministers and other European officials involved in the bailout talks hadn’t been informed about the new tax plan by Nicosia.Apart from sparing small savers with less than €20,000, the draft bill sticks to tax rates that had been agreed Saturday morning at an emergency meeting in Brussels. Depositors with between €20,000 and €100,000 would still pay a 6.75% rate, while those with more than €100,000 would pay 9.9%.
The sticking point is that the proposed bill would fall €300 million short of the amount of revenue the Europeans and the IMF have required for the €10 billion bailout funds to be released. A European official mused to the FT that perhaps the requisite funds could be raised without hurting the small-time saver if the tax on the wealthy depositors—read Russians—would go up to 15 percent.Needless to say, this kind of talk is not sitting well in Moscow. The FT reported that Cypriot President Nicos Anastasiades would be speaking with Vladimir Putin later today by phone. Presumably on the call’s agenda is Russia’s threat not to ease the terms of its 2011-vintage €2.5 billion loan to Cyprus as it had promised.The Cypriot government thus finds itself between two rocks and a hard place: the EU and IMF on the one side and the Russians on the other are making contradictory demands, and its voters are outraged. Cyprus cannot get out of this mess without the bailout funds from the EU. Squeezing the Russians hard will only ensure massive capital flight from the banks once they re-open. And it’s hard to imagine that any sovereign people would take these kinds of arbitrary taxes lying down. Something’s got to give, and none of the potential outcomes for Cyprus look particularly rosy.Yet again, the inadequate level of EU governance is painfully exposed to the world. Not since the 1930s has European leadership looked this this selfish and shortsighted. These people are out of their league.