Cyprus deposit tax ‘overnight robbery,’ says businessman

On Friday afternoon, restaurant owner Neil Hart was standing in the local branch of his bank, ready to withdraw his life-savings to buy a house. Then his lawyer called to tell him the deal had been postponed.

He woke on Saturday morning, switched on the news and heard the government had announced plans to raid his nest-egg and take 10% to pay for the mistakes of the country’s crippled banks.

Hart’s problem? He lives in Cyprus (population: less than one million people) where the banking system is severely overstretched and has been exposed to the debt-ridden Greek financial industry which has occupied Europe for the past few years.

Why is Cyprus trying to tax bank deposits?

The fate of the Cypriot economy, which accounts for only 0.2% of European Union GDP, is unlikely to reignite the financial troubles of the single currency area.

But Hart, a Scottish expat who has lived in the southwest coastal city of Paphos for 13 years with his wife, says the “overnight robbery” by the recently-installed government is devastating people in his community.

“If they can just get into your account in the middle of the night and take money out, in any other situation that would be theft,” he says.

The Cypriot government plans to tap its citizens for 5.8 billion euros [$7.5 billion] and impose a one-off 9.9% levy on deposits over €100,000. Those with smaller savings would be subject to a 6.75% levy.

Watch this: Cyprus business owner lost 10% of savings

The unprecedented tax on bank deposits led to a run on cash machines over the weekend, as customers scrambled to protect their life savings.

With banks ordered to stay closed until Thursday, and people struggling to get cash, Cypriot lawmakers are dithering on a deal that still needs to be ratified in parliament, while also revising the conditions in an effort to place more of the burden on the rich.

But it seems the damage has already been done: a run on the banks now looking increasingly likely.

Hart says he can no longer trust the Cypriot government or the country’s banks after this “underhanded” and “calculated” move to eat away at the savings of ordinary people.

Watch this: Russians prepare to withdraw from Cyprus

Lawmakers waited until the end of business on Friday for the long public holiday weekend in a “well-orchestrated” plan, according to Hart.

He told CNN: “I can tell you 100% now, whether they take the money off me or not. When I can get into the bank on Thursday, I will take all my money out of the bank and put it offshore.”

In an address to the nation on Sunday night, newly-elected Cypriot President Nicos Anastasiades said the country must secure a 10 billion euro package or face economic collapse.

Cyprus may be the fourth eurozone country to request a bailout from international creditors – after Ireland, Portugal and Greece – but it is the first nation where politicians have attempted to force taxpayers into handing over their personal savings to rescue the banks.

Read more: Cyprus: Turning a drama into a crisis

Magda Chrysaphiades says the chaos and panic she witnessed on Saturday after the announcement reminded her of the Turkish invasion in 1974 when she first moved to Cyprus from the UK to set up a leather and suede manufacturing business with her family.

Chrysaphiades returned to Cyprus in 1996 and is now retired. “It feels similar, back then we woke up one day and all hell had broken loose,” she recalls. “But today we just feel absolutely helpless.”

She worries that banks will collapse as savers who feel betrayed seek to withdraw their deposits. “If the banks collapse, people will go hungry because Cyprus is a very small community and there’s no backup… I thought these bailouts and committees were there to help people not take their money away.”

Chrysaphiades and Hart both fear that policymakers are setting a dangerous precedent for future crises.

“If they did it with Cyprus, what’s to stop them doing it in other troubled euro countries?” Hart demands.