Cyprus banks agree to set up stability fund

Cypriot bankers have agreed to be levied an additional tax, as long as money raised goes into a stability fund to help the island’s banking system, should it falter.
Central Bank Governor Athanassios Orphanides suggested that such a fund, based on a Swedish model and one that Germany is currently setting up, would help cushion any deterioration in the banking sector.
“This will reduce the profits of the banks, but at least it won’t increase their costs,” he told journalists on Monday.
Yesterday, he discussed the matter with 13 members of the Cyprus Bankers Association, where the proposed levy was tabled at 0.03 to 0.05% of earnings.
Orphanides sent clear signals on Monday that the government should abandon tax-raising ideas discussed in the past, such as a ‘super tax’ on banks, as they are seen as reaping millions in profits at a time when the island’s economy is struggling and unemployment has reached new records.
However, the fragile centre-left coalition of the Akel and Diko parties want the 60 mln euros raised from the bank’s stability fund to be split so as to hold on to half the money in the government’s coffers to be used to finance other projects.
If the coalition gets its way, splitting the stability fund would equate to a direct tax of the banks, just as was the case of the proposed ‘super tax’, a popular measure announced to appease voter and labour concerns.
Orphanides underlined the need to consolidate public finances the soonest possible, adding that any delay in taking the necessary measures would jeopardise the economy of Cyprus.
Presenting the latest macroeconomic outlook for the economy, Orphanides said he agreed with those who believe that if no structural measures are taken soon, then the economy could be further downgraded.
He stressed that the correction of public finances must have as a long-term aim to reverse the deterioration of public debt, which amounts to 800 million euro and not just to correct the fiscal deficit.
“This should come from spending cuts and not from tax increases,” Orphanides reiterated.