Cyrpus, which until last month was the only European Union country with a Communist head of state, announced Saturday that it would impose a stiff new tax on private bank accounts. Perhaps surprisingly, the Communists may come to the rescue of account holders and calm spooked markets.
The proposal was unveiled Saturday morning, The New York Times reports, after negotiations over a 10 billion euro bailout package with the International Monetary Fund and the European Central Bank. A key provision is a one-time tax on Cypriot bank accounts, with a 9.9 percent tax on accounts over 100,000 euros and a tax of 6.75 percent on smaller ones.
The Wall Street Journal reports that AKEL, a Communist party that is the country's main political opposition, has called for Monday protests outside the country's parliament to oppose the plan.
According to The Times, the bailout ball started rolling last year when Demetris Christofias, the Communist former president, asked for a bailout, then refused to consider privatization of state-owned utilities. Christofias left office at the end of February.
The bank tax proposal currently faces an uncertain future in the country's parliament. The right-of-center coalition government in Cyprus has 30 of 56 seats in the country's parliament and a vote will likely be close. AKEL holds 19 seats and smaller left-wing allies also oppose the plan.
Reuters reports that the proposal is being reworked after withering criticism at home and abroad, and that parliamentary debate has been delayed until Tuesday. One possible alteration is exempting low-dollar bank accounts from the tax, or fiddling with the tax rates.
Russian President Vladamir Putin denounced the plan as "unfair, unprofessional and dangerous" through a spokesman. Foreigners who have accounts with Cypriot banks—over a third of bank assets are reportedly foreign-owned—would also be taxed under the proposal.
On the mostly Greek-speaking island, irate locals visited banks to withdraw their money to evade the tax. One man drove his tractor to a bank in an apparent threat to flatten it. The Journal reports that the country's two largest banks are "quickly running out of money," and that President Nicos Anastasiades made a plea Sunday for citizens to back the plan, warning that default was the only other option.
The effect of the proposal caused ripples through the so-called Eurozone along with fears that such a tax could become a new precedent for indebted countries. The Guardian reports that the euro slid to its lowest value since December and that the price of gold increased. Cyprus is the eastern-most user of the euro, and like its neighbor Greece is being aided to prevent more dire consequences to the currency union's members.