Cyprus bailout: Bank deposit tax ‘dangerous precedent’, says IIF chief

WASHINGTON (REUTERS) - A proposal to impose a tax on bank deposits in Cyprus sets an “incredibly dangerous precedent” and undermines confidence built up in recent months over Europe’s handling of its debt crisis, the head of a global banking association said on Monday.

Mr Tim Adams, managing director of the Institute of International Finance (IIF), said a weekend announcement that Cyprus would impose a one-off tax on bank accounts as part of a €10-billion (S$16 billion) bailout by the European Union had reignited concerns over the euro zone crisis.

Mr Adams told Reuters the announcement broke with practices that depositors’ savings were guaranteed. Cyprus will vote on the decision on Tuesday.

“Crossing the Rubicon of addressing insured deposits and undermining the explicit guarantee - you can call it a tax or whatever you want - but essentially the broken guarantee opens up lots of different possibilities for destabilizing effects in the short term, medium term and long term,” he said in an interview.