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Cyprus to Put Forward New Plan, Banks Stay Shut: Reports

Cyprus, Episkopi Bay
Maurice Smith | Photononstop | Getty Images
Cyprus, Episkopi Bay

Cyprus will put forward a new proposal on Monday under which a tax-free threshold or a lower tax rate for smaller depositors could be introduced, media reports said on Monday, in a move aimed at easing the pain of a bailout agreement which will impose an unprecedented tax on savers.

Banks in the country were shut on Monday for a public holiday, and would remain shut on Tuesday and Wednesday, the agencies said. The news comes amid fears that the decision to force uninsured depositors to fund part of the country's bailout could many prompt savers to withdraw their holdings.

Reuters cited a government source in Cyprus as saying that the country is mulling a tax-free threshold on the bank deposit levy for smaller deposits. It cited a parliamentary official as suggesting that deposits up to 20,000 euros could be exempt. Remaining deposits up to 100,000 euros would be taxed at 6.7 percent and those exceeding that amount at 9.9 percent, the official told the news agency on condition of anonymity.

Earlier Dow Jones cited two unnamed European officials as saying savers with 100,000 to 500,000 euros would face a 10 percent tax, while those with savings over 500,000 euros would be taxed at 15 percent. Those with savings up to 100,000 euros would be taxed at 3 percent, according the report.

Under the original plan, every depositor under 100,000 euros would be taxed at 6.75 percent and those over that amount would face a 9.9 percent tax. The Cypriot Parliament has delayed a vote on the plan to Tuesday, an EU official told Reuters, "to allow time for more negotiations".

European Central Bank board member Joerg Asmussen told reporters on the sidelines of a conference on Monday that it was for the Cypriot government to decide the structure of a levy on depositors, Reuters reported, but the overall volume of its contribution to the bailout had to amount to 5.8 billion euros.

The German and French governments were also open to changing the bailout deal for Cyprus, Reuters said.

In order to achieve debt sustainability, a contribution from Cyprus is necessary, a contribution from the banking sector, from depositors and owners," Steffen Seibert, a spokesman for Chancellor Angela Merkels told the agency.

"How the country arrives at this contribution, how it divides it up, was and is up to the Cypriot government," he added. "As I believe the finance minister said last night on television, Germany could have imagined a different solution, a different staggering. But it was not our decision."

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