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Originally published March 17, 2013 at 9:04 PM | Page modified March 18, 2013 at 9:20 AM

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Anxious Cypriots drain ATMs after news of bailout deal

Although banks in Cyprus placed withdrawal limits of about $520 on ATMs, most had run out of cash by early evening.

The New York Times

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Wow, what a sucker punch. As with sucker punches though it isn't likely to work a... MORE
This is a great way to trigger a great depression-like run on the banks in Europe. What... MORE
This isn't socialism: they are taxing savers to pay investors (gamblers) and... MORE

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ATHENS, Greece — In a move that could set off new fears of contagion across the eurozone, anxious depositors drained cash from ATMs in Cyprus on Saturday, hours after European officials in Brussels required that part of a new $13 billion bailout must be paid for directly from the bank accounts of ordinary savers.

The move — a first in the 3-year-old European financial crisis — raised questions over whether bank runs could be set off elsewhere in the eurozone.

Jeroen Dijsselbloem, the president of the group of euro-area ministers, declined Saturday to rule out taxes on depositors in countries beyond Cyprus, although he said such a measure was not currently being considered.

Although banks placed withdrawal limits of about $520 on ATMs, most of them had run out of cash by early evening. People around the country reacted with disbelief and anger.

“This is a clear-cut robbery,” said Andreas Moyseos, a former electrician who is now a pensioner in Nicosia, the capital. Iliana Andreadakis, a book critic, added: “This issue doesn’t only affect the people’s deposits, but also the prospect of the Cyprus economy. The (European Union) has diminished its credibility.”

In Nicosia, about 150 demonstrators massed in front of the presidential palace in late afternoon after calls went out on social media to protest the abrupt decision, which came with almost no warning at the beginning of a three-day religious holiday on the island.

Under an emergency deal reached early Saturday in Brussels, a one-time tax of 9.9 percent is to be levied on Cypriot bank deposits of more than 100,000 euros — about $131,000 — effective Tuesday, hitting wealthy depositors, mostly Russians who have put vast sums into Cyprus’ banks in recent years.

But even deposits less than that would be taxed at 6.75 percent, meaning that Cyprus’ creditors will be confiscating money directly from pensioners, workers and other depositors to pay off the bailout tab.

Cyprus’ newly elected president, Nicos Anastasiades, said taxing depositors would allow Cyprus to avoid implementing harsher austerity measures, including pension cuts and tax increases, of the type that have wreaked havoc in neighboring Greece.

That thinking appealed to some Cypriots, including Stala Georgoudi, 56. “A one-time thing would be better than worse measures,” she said. “Procrastinating and beating around the bush would be worse.”

But Sharon Bowles, a British member of the European Parliament who is the head of the body’s influential Economic and Monetary Affairs Committee, said the accord amounted to a “grabbing of ordinary depositors’ money,” billed as a tax.

Cyprus had been a blip on the radar screen of Europe’s long-running debt crisis — until now.

Hobbled by a banking crisis linked to a slump in Greece’s economy, where Cypriot banks made piles of loans that are now virtually worthless, Cyprus on Saturday became the fifth country in the euro union to receive a financial lifeline since Europe’s debt crisis began.

As the eurozone’s smallest economy, Cyprus had hardly been considered the risk for the euro union that Greece, Ireland, Portugal and Spain were.

But the surprise policy by the International Monetary Fund, the European Central Bank and the European Commission is the first to take money directly from ordinary savers. In the bailout of Greece, holders of Greek bonds were forced to take losses — but depositors’ funds were not touched.

Anastasiades, who was elected a few weeks ago, called the decision “painful” but said it would lead to “the historic and definitive rescue of our economy.”

He said the consequences of rejecting the deal would be the collapse of at least one of Cyprus’ major banks, amid widespread weakness in the country’s banking system.

Cypriot banks are loaded up on bad loans made to Greek companies and individuals, which have turned sour at an alarming rate as Greece copes with the fourth year of financial crisis.

The deposit tax, which is expected to raise 5.8 billion euros — worth about $7.6 billion — appeared aimed at gleaning large amounts of cash from the bank accounts of wealthy Russians, who have poured deposits into Cypriot banks in the past several years.

Chancellor Angela Merkel of Germany, who faces a pivotal election in September, has been particularly concerned that most of the bailout money could wind up in the hands of Russian gangsters and oligarchs, a fear backed by a recent report by Germany’s intelligence agency.

The Cyprus Parliament is required to vote on the measure, and it was planning an emergency session Sunday.

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