BUT.......who would have thought that part of the bail out would include a levy on all private bank account holders in Cyprus. The shock is being spread around the world. Stock markets across Europe are already down.
Private bank account holders with less than EUR 100,000 will pay a levy of 6.75% of the balance on their account. Those holding more than EUR 100,000 will pay a higher 9.9%. On which day this will be calculated it is not known. But the levy amount has already been 'protected' to stop people taking all money from their accounts. During the weekend it was reported that many ATM's ran out of cash across Cyprus.
Much has been said about 'all that Russian money' in Cyprus. I'm sure that ECB, EU, IMF teams are fully aware of how much is held in Cyprus by Russians and other foreigners. Over 40% of money deposited in Cyprus is held by 'foreigners'. However I think this figure is too low. This situation could have been solved by an easier solution. If the levy proposal had included 'corporate accounts' it would not have been met with so many if any protests.
Almost ALL money finding its way to Cyprus from Russia and Ukraine is via company transfers. People do not transfer money in a private capacity. In Ukraine it is still illegal for a citizen to hold a bank account in another country without first obtaining permission from the government.
Cyprus has always attracted 'corporate investors' due to its low 10% corporation tax and ease of doing business.
So lets assume that most of the 'Russian money' has found its way to Cyprus via a company transaction.
Some of this money will still be sat in a Cyprus company bank account. (Cyprus company owned by Russians but held in trust by local Cypriot lawyers or accountants or other nominee shareholders and directors). I'm sure some of this money has been paid into 'private accounts' as dividends or via lawyers and accountants fees but not all. A one off tax levy of 10 or 15% on the corporate sector 'overseas receipts' would have hurt for a short time but would not have been noticed. Who would be listening to the complaints of super rich Russians anyhow?
I cannot imagine that other EU member states will simply ignore what is proposed in Cyprus.
This will be a very interesting week in the EU and beyond.
