The Cyprus debt crisis poses a "systemic risk" that threatens to ricochet right through the Eurozone, European Head Jeroen Dijsselbloem has said.
Speaking Thursday during a European Parliament hearing, the Eurogroup President referred to "worries about the stability of the Eurozone," adding that the "present situation is definitely a systemic risk and the unrest of the last couple of days has proven this”.
Commenting on the rejection of the bank deposits levy by the Cyprus House, Eurogroup Head said that this levy should have been called and understood as a "wealth tax", not a raid on savers` deposits.
Dijsselbloem also said that he does not see many alternatives for Cyprus , adding that a new loan from Russia would be the wrong approach to take, as this would only pile up debt to an unsustainable level.
"Any other options, to go further, another loan or an investment in the banks, the Russians let us know that they are not willing to do that.Of course, the Cypriot government is now talking to the Russian government whether more can be done, I don`t know the outcome of that yet", he pointed out.
He added that “the vast amount of deposits in Cyprus are not really from savers, they`re from investors". Dijsselbloem also noted that there were "more radical options" discussed, but that Eurozone Ministers decided not to go there.
Eurogroup Head also said that "it`s probably inevitable there will be some kind of levy in the final package that we will agree upon". "The levy I can strongly defend, because it is a direct way to ask a contribution of the deposits of the banking sector in Cyprus, which is inevitable if you want to a build a package which doesn`t bring more loans and more debt to Cyprus," he said.
"The Eurogroup thinks it`s very important that we should have a fair burden share, and that means a larger contribution from large depositors than, of course, from small depositors." Dijsselbloem underlined.
Following the Eurogroup meeting, the House of Representatives plenary rejected Tuesday a draft bill on Cyprus` bailout agreement that provides for an unprecedented levy to be imposed on savings in Cyprus banks (haircut) with 36 votes against and 19 abstentions.
Excluded from the international markets, Cyprus applied last June for financial assistance from the EU bailout mechanism, after its banks sought state support following massive write downs of the Greek bond holdings amounting to €4.5 billion or 25% of the island`s GDP, as result of the Greek sovereign debt haircut.
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