Cyprus Deal Targets Private Bank Accounts

From Der Spiegel:

Euro-zone finance ministers and the International Monetary Fund reached a deal with Cyprus early Saturday morning on a bailout package for the country that has been the subject of dispute for months now. It will mark the first time that savers in a country in the euro zone are required to participate in a bailout.
The deal followed intense negotiations and the main sticking point during the 10-hours of talks had been the demand that savers at Cypriot banks also be required to contribute to the bailouts of the beleaguered financial institutions. Under the deal, any bank account holder in Cyprus with deposits exceeding €100,000 will be subjected to a one-off levy of 9.9 percent of their savings. Accounts with less than a €100,000 would be required to make a 6.75 percent payment. In total, the deposit tax is expected to generate around €5.8 billion.
Large sums of money have been deposited in Cypriot banks by foreign customers, particularly wealthy Russians and Brits. Russian oligarchs have billions in deposits in the banks, and almost half of the deposits in the country are believed to be from non-resident Russian citizens. Together, the country's banks hold close to €70 billion in deposits. Cyprus also agreed to raise the country's nominal corporate tax rate, the lowest in Europe, by 2.5 percentage points to 12.5 percent. But sources said the country would not be given a debt haircut.
The Cypriot government said Saturday it would cease electronic transfers to prevent savers from wiring money out of the country. And Jörg Asmussen, a German board member of the European Central Bank said that the amount of the one-time levy would immediately be frozen in all accounts in Cyprus. Banks in the country will also be closed on Monday because of a holiday. The Cypriot government is expected to pass a law this weekend approving the levy. "I assume that the levy can be applied before the banks reopen normally on Tuesday," Asmussen said.

One of the political issues here was that a lot of Europeans saw a bailout as simply funneling money to banks that were primarily used to hide or launder money from organized crime. The question is whether this will set a precedent for other bank bailouts, and further encourage the flight of money from the PIGGS into more stable economies.