Today's news, tomorrow's lesson
People in Cyprus have been shocked to learn that its government plans to take almost 10 per cent of their savings.
Savings raid to bail out Cyprus
Today's news, tomorrow's lesson - 18 March 2013
By Joseph Lee
People in Cyprus have been shocked to learn that its government plans to take almost 10 per cent of their savings. Why are they doing this?
It's all part of the economic crisis affecting most of Europe. During the boom years before 2008, banks in Cyprus loaned huge amounts of money to Greece. Many of those loans went bad in Greece's financial collapse, and a bailout of the Greek government last year caused further losses in Cyprus. Unlike many countries whose banks have failed, the Cypriot government cannot afford to pick up the bill.
How will the bailout work?
The International Monetary Fund – which helps countries with serious financial difficulties – and the European Central Bank will provide 10 billion euros, while in return Cyprus has to find 5.8 billion euros itself. It will do that by imposing a tax on savers, the first time this has happened in the global financial crisis.
Who will be affected?
Anyone with under 100,000 euros in their accounts will pay a one-off sum of 6.75 per cent of their savings, while anything above will pay a 9.9 per cent tax. Depositors will be compensated with the equivalent amount in shares – this means they are effectively being forced to invest in the banks to keep them afloat. Non-Cypriots with bank accounts in Cyprus will have to pay the tax too. British ex-pats have 2 billion euros in Cypriot banks, but the British government has said it will compensate troops based on the island and civil servants.
How are people reacting?
Not surprisingly, people set to lose money are furious. Gordon Cowe, a retired police officer from Edinburgh, is among the tens of thousands of Britons living in Cyprus. He told The Times he had lost several thousand pounds. "How can you trust the system when the government can steal money from you?" he said. "There is no guarantee they won't do it again. I'm taking my money out."
Stelios Zinga, a truck driver in his late 50s, was reported by The Guardian to have joined queues at a cashpoint to withdraw his money. "People are panicking, they're afraid of losing their money, they don't feel they can trust banks anymore," he said. "The problem with this levy is that it is the cautious, working-class people who are being made to pay."
Will anyone outside Cyprus be affected?
There's no reason to think so at this stage. Customers of Bank of Cyprus UK are protected by rules here that guarantee savings of up to £85,000, while finance ministers in other countries have described Cyprus as a special case.
Is it legal?
Yes, but it goes against the spirit of so-called "deposit insurance", a system adopted by many countries to reassure people that their money is safe with banks by guaranteeing their savings if the bank fails.
Did the government have any choice? Financial experts say yes. The Cypriot government could have protected those small savers and business owners whose deposits should have been guaranteed, while imposing more severe charges on people and organisations with bigger savings. Some have suggested that Cyprus chose this route because big foreign investors are so important to its banking sector. "This is a conscious choice to make poorer people pay to help richer ones," said the Financial Times.
- Why is economics an important subject? What impact does the national economy have on your life?
- Would you prefer to save your money or spend it as soon as you get it? Explain your choice.
- The Cypriot government are said to have acted legally, but is their choice also moral, in your opinion?
Resources for you
- A set of top trump cards to help students understand what are good and bad levels for indicators globally.
- A comprehensive set of resources developed by Barclays, in partnership with the British Institute of Learning Disabilities (BILD), to provide people with learning disabilities clear information about how to manage their money.
- Take a look at the TES collection of resources around money matters.
Further news resources
- Help your pupils understand the features of the front page of a newspaper.
- Get students creating their own news report with this step-by-step guide.
- A sociological and media perspective on what makes an event 'newsworthy'.
- Help pupils to write their own TV news broadcast with this handy PowerPoint.
- A scheme of work to help students structure news stories.
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