In response to backlash over a €10 billion deal that would bailout its banks and impose a financial transaction tax on all depositors, the Cypriot government on Monday postponed a vote to finalize the package until Tuesday, giving itself a little more time to amend the agreement.
So let’s go over some of the amendments that have been suggested by EU finance minsters and Cyprus' leaders.
First, the most controversial part of the original bailout deal included a one-off tax of 6.75 percent for those with less than €100,000 in the bank. For those with more than €100,000, the levy would be about 10 percent.
However, although many in Europe argue in favor of a tax on the "ultra-wealthy," pretty much everyone balked at the idea of levying a tax on small-time depositors.
“If Cyprus decides to roll back that provision, it could soften the blow domestically and reverse some of the fears that depositors in other peripheral countries could be subjected to the same treatment in the future,” Business Insider’s Matthew Boesler notes.
Indeed, because it's widely believed that an amendment protecting small-time depositors from heavy levies will silence backlash against the deal, EU leaders have suggested that the one-off tax for people with less than €100,000 in the bank be revised to three percent, according to the BBC.
And this is where we get into the second proposed amendment: Increasing the levy on depositors with more than €100,000.
Euro zone finance ministers have suggested that depositors with €100K -- €500K in the bank pay a 10 percent levy while those with more than €500K pay a one-off tax of 15.6 percent.
But here’s the thing: The €100K and above crowd is heavily populated by Russians. Lots of them. In fact, with roughly $31 billion in the country's banks, Russian banks and businesses account for nearly half of all Cypriot deposits, according to conservative estimates by the Moody's rating firm.
So, yes, a 10 -- 15.6 percent levy on major depositors would go directly for Russian cash. Needless to say, a one-off tax on Russian money probably won’t go over very well in Mother Russia.
"There is no question but upon whom the decision by the Cypriot government … is going to fall most heavily: Russian oligarchs; Russian government officials and Russian criminals,” writes the economist Dennis Gartman in his latest note.
"Cyprus has been their own private Switzerland for many years. Legal and non-legal Russian cash has swamped the banking system in Cyprus since the early 90’s,” he adds. “The beauty of the island; the ease of admission too and exit from the island via boat or plane; the secrecy of the banking laws; the warm Mediterranean climate and the ease of which Cypriot authorities could be bribed and bought all worked to make Cyprus the center of Russian capital flight.”
His note continues:
The Russians... legal and illegal... loved Cyprus for the reasons noted above, not the least of which was the tiny 4% corporate tax rate there. Who would not like that rate? It attracted money relentlessly, with the Russians leading the way. Criminal money especially was attracted to the secrecy laws, sending money to the island to have it “washed” and then either left there on deposit, or returned to other banking centers for “investment” abroad, but “washed” thoroughly and made nearly impossible to be followed and tracked. It was an enterprise that worked to the benefit of the Cypriot government and to the Russians, despite the comment by the new President, Mr. Anastasiades, that Cyprus was and is “not complacent about money laundering.
One could only laugh as such a comment; of course Cyprus was complacent about laundering. To think otherwise was and is naïve. Ah, but now you’ve stolen Russia money... or soon shall depending upon the vote in the Cypriot parliament... and that is dangerous... very. One does not steal Russian mafia money and get away with it. There are fewer statements of fact that are more certain, more factual, more unyielding than this statement. Russian Mafia figures do not take well to being stolen from, and they take even less well to be made fools of. We see no reason to mince words at this point: People will be hurt over this decision; some shall be killed."
The Cypriot government will move tomorrow to finalize the bailout deal. We’ll see where things go from there.
Glenn Beck discussed the issue during his show on TheBlaze TV Monday. Watch below:
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Featured image Getty Images. This post has been updated.