George Osborne vowed today that those serving in Britain's military or government in Cyprus will be protected after European finance chiefs ordered an unprecedented raid on personal bank accounts.
Up to 60,000 British savers are to lose thousands of pounds each as expats in Cyprus have their savings decimated in part of a painful bid to bail out the bankrupt island.
The Chancellor said the financial situation in Cyprus was ‘an example of what happens if you don't show the world that you can pay your way’, adding: ‘We are not part of the bailout.’
Panic: A move by Cypriot authorities that could see up to ten per cent of bank deposits seized to bail out the bankrupt sparked panic and violent protests. One disgruntled customer parked a bulldozer in front of a bank in the coastal town of Limassol in protest
Queues: People withdraw money from a cash-point machine in the Cypriot capital of Nicosia today
However he told BBC One's Andrew Marr Show: ‘The Cypriot banks in Britain are not going to be included in this bank tax. It's a very difficult situation for people who live in Cyprus.
'But for people serving in our military and government out in Cyprus, we're going to compensate anyone who is affected by this bank tax - people who are doing their duty for our country.’
Britons have about £1.7billion of deposits in Cyprus and could lose up to £170million. The Cypriot government has agreed to seize up to ten per cent of savings and use the money to bail out the island’s crisis-hit banking system.
The move sparked panic and violent protests yesterday as crowds desperately tried to withdraw their money at cash machines.
Warning: Chancellor George Osborne said today on BBC One's Andrew Marr Show that the situation in Cyprus was 'an example of what happens if you don't show the world that you can pay your way'
Restrictions have been imposed to stop people emptying their accounts or moving their money out of the country following the deal with other eurozone finance ministers, under which ordinary citizens’ deposits will be directly raided for the first time.
One furious expat said: ‘This is plain theft. I’d love to hear someone explain to me why it isn’t.’
Furious: Shirley Brooks, 61, who is originally from Manchester, said she stands to lose £18,600 of her retirement money
And one of the 3,000 British service personnel based on the island said: ‘I stand to lose €4,000 [£3,500] We’ve tried to save quite hard while we are here – that’s been thrown back in our faces.’
Cypriot president Nicos Anastasiades, who agreed to the raid following ten-hour talks with European finance chiefs, said it was necessary because Cyprus was in a ‘state of emergency’ and failure to enact the Brussels plan would be ‘catastrophic’.
Under the deal, all bank deposits over €100,000 will be hit with a levy of 9.9 per cent. Those with smaller savings will pay 6.75 per cent.
The raid will raise €5.8billion, which will be added to a €10billion bailout from Brussels.
But financial experts said the move – designed to stop Cyprus crashing out of the euro, potentially destroying the currency – would send shock waves through the eurozone.
If savers in other troubled nations fear their accounts might be next, they could withdraw their money and spark a catastrophic run on the banks.
Economist Howard Archer from IHS Global Insight said: ‘It is an alarming precedent to hit the man in the street. As much as they say this is a one off, people will say if they can do it once they could do it again.’
Tory MP Douglas Carswell added: ‘We should all be extremely worried about this. It shows that ordinary Europeans are being fleeced by the Continent’s elite in order to rescue foolish banks. Why would you risk putting your money in Greek, Spanish or Portuguese banks after this?’
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