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News : Irish Last Updated: Mar 19, 2013 - 9:29 AM


Tuesday Newspaper Review - Irish Business News and International Stories - - March 19, 2013
By Finfacts Team
Mar 19, 2013 - 9:24 AM

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The Irish Independent reports that the Government has moved to calm fears over any threat of a tax on deposits in Irish banks and said there is no risk of contagion spreading from Cyprus to the rest of Europe.

Taoiseach Enda Kenny commented just hours before the Cypriot parliament was expected to vote on a controversial bailout plan which – if passed – would impose a levy on bank deposits. However, it was signalled last night that those with less than €100,000 may be protected.

Mr Kenny said there was no need for Irish bank depositors to be worried about their savings as a result of the proposed tax on savings in Cyprus.  A No vote could force Cyprus to default, which would plunge the eurozone into further crisis.

The one-off levy on deposits in Cypriot banks was a departure from other bailouts and has sparked fears that deposits in other European countries – even those not in a bailout – could be at risk.

That fear was compounded yesterday when credit ratings agency Moody's warned that it was a significant step towards limiting or removing safeguards for depositors across Europe.

However, speaking in Washington, Mr Kenny said Cyprus was a "different and unique case".

"Clearly, the Cypriot parliament now have got to assess and make their judgment in their own way on the deal that has been put through," he said.

The Department of Finance also stressed that there were no implications for any other EU state. However, stock markets slumped yesterday – with Ireland and Iceland the only two states in western Europe to buck the trend.

Finance Minister Michael Noonan, who has travelled to Rome to represent the Government at Pope Francis's inauguration, took part in a conference call with eurozone finance ministers yesterday evening.

In a statement, the Eurogroup said it "continues to be of the view that small depositors should be treated differently from large depositors and reaffirms the importance of fully guaranteeing deposits below €100,000".

It said the Cypriot authorities could alter the levy imposed on smaller savers as long as they secured the €5.8bn target set by the troika.

Mr Noonan's spokesman stressed that there would be no impact on Irish depositors.

"There's nothing for us to add to the debate other than saying that there's no impact here in Ireland and that is the position," he said.

Enterprise Minister Richard Bruton said the Cypriot bailout was designed to avoid contagion elsewhere in the eurozone.

He said the final details of the rescue had yet to be decided, and there was "flexibility" around the deal.

Under the €10bn bailout agreement, announced on Saturday, depositors must pay a one-off levy. Anyone with deposits of up to €100,000 would be hit with a 6.75pc tax, while those above that face a 9.9pc levy.

However, reports from Brussels last night suggested smaller depositors may be protected, with a possible 15.6pc levy on amounts over €100,000 and no tax on deposits below that amount.

The recently elected Cypriot president, Nicos Anastasiades (right), and his government were working to ease the terms of the deal ahead of today's vote – potentially tilting the bulk of the burden on those with more than €100,000 to avoid hitting ordinary Cypriot savers.

A source said authorities hoped to cut the tax to 3pc for deposits under €100 000. The rate for deposits above that would be increased to 12.5pc from 9.9pc.

A protest took place outside the parliament in Cypriot capital Nicosia yesterday, with some blaming Germany under Chancellor Angela Merkel for raiding their savings.

With a large number of Russian deposits in Cypriot banks, a spokesman for Russian President Vladimir Putin said imposing the tax would be "unfair, unprofessional and dangerous".

Banks in Cyprus are to remain closed until Thursday and the vote was postponed until today.

While demanding that the tax raise the targeted €5.8bn, European officials said easing the cost to smaller savers was up to Cyprus.

A Cypriot source said the introduction of a tax-free threshold for smaller bank deposits was not yet agreed.

Locals emptied cash machines over the weekend as across Europe investors feared a precedent had been set.

Moody's said the decision to target depositors was a major departure from previous bailouts and warned it could have negative implications for European bank ratings.

Mockery

Fianna Fail's finance spokesman, Michael McGrath, said that burning depositors in Cyprus would set a dangerous precedent across the eurozone and make a mockery of plans for an EU-wide banking union.

"The imposition of a so-called 'tax' of up to 9.9pc on deposits as part of the Cypriot bailout deal sends a clear signal that ordinary depositors are now in the firing line," Mr McGrath said.

He claimed the move would undermine investor confidence.

"Irish depositors will legitimately ask how safe their money is if it transpires that Irish banks need more money to absorb losses on mortgages and business loans," he said.

Mr Noonan's spokesman said, however, that there had been no suggestion by the Eurogroup, the ECB, EC Commission or IMF that the tax would apply in any other member state.

"This is part of a package of specific measures to address a complex and unique situation in Cyprus," he said.

The Irish Independent also reports that Education Minister Ruairi Quinn has ordered Trinity College to stop paying an "unauthorised" allowance worth up to €3,000 each to its lecturers.

The tutors' allowance has been given to lecturers who provide confidential personal support to students who are having problems with exams and finances. But Trinity never got the required permission from Mr Quinn's department to pay the allowance and has now been told to halt it in the summer.

The payment of up to €3,000 was being made to 117 Trinity lecturers. It had been in place since the 1970s, but the college was required under 1997 legislation to get permission to keep paying it.

However, neither Trinity nor the individual lecturers will have to repay the department.

Mr Quinn has confirmed that Trinity did not have permission to pay the tutors' allowance to its lecturers.

"The university has been directed to permanently cease the payment of the unauthorised allowance with effect from July 2013," he said.

Rate

There are 107 lecturers in Trinity who are being paid €3,070 per year to act as tutors to groups of 90-100 students each.

And there are another 29 lecturers getting a half-rate tutor's allowance of €1,535 for each looking after 45-50 students.

Mr Quinn was responding to a parliamentary question from Labour TD Aodhan O Riordain.

The Department of Education discovered the existence of the tutors' allowance last year after asking all colleges for a full list of payments as part of the Government's review of public sector allowances.

It has told Trinity College that there is no reason why it cannot continue to provide the tutors' service to students without the extra payment.

Trinity has confirmed it will continue to do this. It said that tutors deal with the college on behalf of students, helping them with course transfers, medical and money problems.

"Tutors can provide pastoral care and guidance and ensure that the student is able to make the best decision, given their personal circumstances," a spokeswoman said.

The Irish Times reports that angry Cypriot bank depositors appeared to have won concessions on the terms of the Cypriot bailout deal last night, after euro zone finance ministers urged Cyprus to protect depositors with savings of less than €100,000.

In a statement following an evening teleconference, euro zone finance ministers said that “small depositors should be treated differently from large depositors”. While it was unclear if Cyprus would agree to the proposal, such a move would push the burden of the deposit tax onto larger deposit holders, many of whom are Russia n investors.

Speaking in Washington, Taoiseach Enda Kenny downplayed suggestions that reaction to the Cyprus bailout could have negative implications for Irish banks.

In the Cypriot capital of Nicosia, political deadlock over the bailout deal continued throughout the day, after a key parliamentary vote on the deal was delayed again, having been scheduled to take place yesterday. As public anger continued over the unprecedented decision to levy depositors as part of the euro zone’s bailout for Cyprus, the government confirmed that banks would remain closed until Thursday.

President Nicos Anastasiades needs to secure political support for the bailout deal agreed with the Troika of international lenders on Saturday, which proposed a 9.9 per cent levy on savings of more than €100,000 and a 6.75 per cent tax on deposits below that threshold. If the deal is not passed by government, the country could face bankruptcy, he has warned.

While Mr Anastasiades’ Democratic Rally party and its junior coalition partner, the Democratic Party, hold 28 of the 56 seats in parliament, two members of the smaller party oppose the deal.

Cyprus first sought a bailout last June after its banks were impacted by the Greek sovereign debt write-down, but final agreement on the deal was delayed by the Troika of international lenders amid suspicion of illegal money-laundering and doubts about the country’s commitment to economic reform.

As protestors staged demonstrations in Nicosia, Russia weighed into the debate, condemning the plan to tax savings which is expected to hit Russian savers.

President Vladimir Putin and prime minister Dmitry Medvedev lambasted the EU plan, which would affect billions of euros held by Russians in Cyprus, while Moscow’s finance minister warned that it might no longer be willing to ease the terms of a €2.5 billion loan to Nicosia. Of the €70 billion deposited in Cypriot banks, about half belongs to Cypriots and residents, including some Russians and Britons, and half to non-residents.

Meanwhile, markets delivered their first reaction to the bailout, as euro zone officials moved to quell anxiety about possible contagion effects.

Having fallen sharply in early trade, stock markets regained some ground during the session, though the euro fell to a three-year low. Italian and Spanish bond yields both rose sharply, reflecting fears about the weakness of the two euro zone economies and the size of their debt burdens. European shares closed 0.3 percent lower, having at one point been down as much as 1.4 per cent.

Yields on Ireland ’s 10-year benchmark bond issued last week rose slightly to 4.086 per cent but remained below the 4.15 per cent level at which they were issued.

The European Central Bank warned that failure to agree an aid programme for Cyprus could cause “considerable difficulties” for Ireland and Portugal as they prepare their return to financial markets.

The Irish Times also reports that the European Commission’s push for common rules which would see companies pay tax where they make sales, rather than where they are based – a move that could damage Ireland’s attractiveness to multinationals – is “not history”, a senior commission official has said.

The push for a common consolidated corporate tax base was first put on table two years ago after a decade of preparation, Philip Kermode, director of the commission’s directorate-general for taxation, told an Oxford University conference.

Progress on the issue is currently in the hands of the Irish EU presidency, which “must regard this as a somewhat poisoned chalice”, said Mr Kermode, who is one of Ireland’s highest-ranked officials in the commission.

The creation of a common consolidated corporate tax base (CCCTB) would not create equal corporate tax rates throughout the EU but would allow firms to comply with an EU-wide system for computing their liabilities.

Concrete action
Ireland, the UK and the Netherlands, oppose a CCCTB, while doubts about it exist elsewhere, but Mr Kermode said the European Council had demanded “concrete actions – no more theory, please, concrete actions” on taxation.

“We have no corporate tax harmonisation, per se: this proposal is not a proposal to harmonise corporate taxes, but what it has done is to open a very detailed discussion at che Council about the elements of a tax base.

“It does appear to us now that there is a certain amount of push towards continuing discussion on a so-called step-by-step basis which concentrates first on the base,” Mr Kermode told the Oxford University Centre for Business Taxation conference.

The Irish Examiner reports that amazingly nobody seems to want to claim credit for the great Cypriot bank raid, and it’s hard to find anyone with a good word to say about the “deal” which has put all of Europe into a Boylean “state o‘ chassis”.

The ECB is running a mile from this one and is intent on putting the blame on Cyprus president Nicos Anastasiades and the Cypriot finance ministry, a person, who asked not to be named as the discussions are not public, told Bloomberg news.

The ECB, “the person” said, was against taxing Cypriot savings accounts under €100,000.

This argument was augmented by ECB executive board member Jörg Asmussen who said in Berlin yesterday that the bank had “not insisted” on the structure of the levy.

It now seems that the Cypriots can structure the raid any which way they want, according to Asmussen, as long as they deliver the €5.8bn required to secure a €10bn funding deal.

Wolfgang Schäuble, the German finance minister, who represented Germany in the rescue talks in Brussels, was also backtracking like mad, saying it was “not the creation” of the German government and that he was open to changes.

Russian president Vladimir Putin is not happy either, over the fact that his compatriots, and maybe even himself, may have to cough up a significant portion of the €5.8bn.

It seems as much as €23bn of the total €70bn deposit base of the Cypriot banks is held by Russians and Russia banks.

Putin sees the bank raid as unfair and setting a dangerous precedent.

“While assessing the proposed additional levy on bank accounts in Cyprus, Putin said that such a decision, should it be made, would be unfair, unprofessional, and dangerous,” Kremlin spokesman Dmitry Peskov told journalists.

Cyprus Mail columnist Stelios Orphanides is livid and told readers in yesterday’s newspaper that he is now a sworn enemy of the “European Union GmbH” — a union he describes as having limited liability and selective solidarity.

“As a Cypriot citizen and taxpayer, I was asked three times in the recent past to contribute to the rescue of three other eurozone members (Greece, Ireland, and Portugal) when my government participated in their respective rescue packages with loans.

“Back then, I remember very well, I neither complained nor heard of any other Cypriot complain about the Greeks, the Irish, or the Portuguese,” he wrote.

Orphanides said it is now clear that while systemically unimportant countries have an obligation to contribute to the rescue of systemically important eurozone members, they have no right to expect any solidarity whatsoever.

“The fact that the European leaders and finance ministers took such a stupid decision — which implies that Cyprus will lose another €5.8bn or 35% of its gross domestic product in accumulated wealth — demonstrates that Cyprus’s ‘rescue’ [in turn] raises the overall Cypriot contribution to fighting the euro-crisis to over 60% of its GDP, [and] demonstrates that solidarity within the eurozone is a one-way street,” he fumed.

Orphanides had one last question. He wanted to ask Europe’s political masters: “Have they really pondered matters carefully enough before even proposing this new type of remedy, as to how it will affect financial stability in other eurozone countries with marginally sustainable government debt such as Italy or Belgium?”

Who knows what the unintended consequences from this so-called deal will be across the eurozone.

Few were betting that President Anastasiades’s pledge that savers would be compensated by shares in commercial banks — with returns bolstered by anticipated revenues from yet-to-be-tapped Cypriot natural gas discoveries — will be sufficient in assuaging his fellow Cypriots.

Savers across Europe have been unsettled by this bank raid and will be looking for ways to ensure they do not become victims of any future EU-sponsored bank heist — this is one consequences of which we can be sure.

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