Cyprus and the proposed “deposit tax”

Cyprus and the proposed “deposit tax”

Cyprus’s parliament rejected an unprecedented levy on bank deposits, dealing a blow to European plans to force depositors to shoulder part of the Country’s rescue in a standoff that risks renewed tumult in the Euro area. The deal sought to raise E5.8b by drawing funds from Cyprus bank accounts (known as a deposit tax) in return for E10b in external aid.

Of the 17 countries in the Euro, the Cypress economy with GDP of E16b, ranks number 15, ahead of Estonia (E13b) and Malta (E5b) and accounts for less than 0.2 per cent of the Euro E9.4 trillion economy.

Given the degree of cross border lending and the fact Europe permits the free movement of capital, European Banks, many of which are partially owned or directed by the state, may be forced to accelerate their liquidation of their foreign assets to shore up domestic state finances.

According to the Bank of International Settlement, Cypress Banks’ have E47b of cross border loans to Eurozone countries while Cypress has an additional E47b of internationally owned debt securities of Eurozone states. This aggregates to 588% of the Cypress GDP and compares with the Eurozone average of 160 per cent.
Followers of the Eurozone situation should watch the reaction from Wolfgang Schaeuble, the well regarded German Finance Minister.

MORE BY DavidINVEST WITH MONTGOMERY

Chief Executive Officer of Montgomery Investment Management, David Buckland has over 30 years of industry experience. David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.