SCORCHED EARTH: The Cyprus bailout, cut on deposits, not current accounts

Here are the outlines of the financial package:

– Nicosia will impose a 9.9% one-off levy on deposits above 100,000 euros in Cypriot banks and a tax of 6.75% on smaller deposits from March 19. The levy will generate 5.8 bln euros. There is no mention of a levy on current accounts.

Depositors will be compensated by equity in the banks. A similar fate may also be reserved for some 2 bln euros worth of bond holders who had been duped by Bank of Cyprus and Cyprus Popular Laiki Bank to buy the unsecured instruments.

There will also be a tax on interest that the deposits generate. From the current 15% it will probably rise to 30%.

– Cyprus has agreed to increase its nominal corporate tax rate by 2.5 percentage points to 12.5%, which could bring in up to 200 mln euros a year. However, this could also turn out to be a double-edged sword, as higher rates could push companies beyond Cyprus shores, resulting in lower revenues for state coffers.

– The IMF is expected to contribute to the rescue package, but the amount is still to be determined. It has also not said when it will cointribute the funds.

– Russia will likely help finance the programme by extending a 2.5 bln euro loan already made to Cyprus by five years to 2021 and reducing the interest rate, which is now at 4.5%.

– Cyprus may be required to privatise the Cypriot telecoms company Cyta, the electricity company EAC and the ports authority, which combined have assets worth 4 bln euros. Four more government owned services may also be privatised.