Deposit guarantees only protect against bankruptcy, not levies: EU

BRUSSELS (Reuters) - Guarantees on deposits in the European Union are only there if a bank completely collapses, and does not protect from fiscal steps decided by parliaments, the European Commission said on Tuesday, defending a decision to impose a levy in Cyprus.

The eurozone's demand at the weekend that Cyprus place the levy on bank accounts as part of an emergency financial rescue has created a backlash in Cyprus and prompted many Europeans to accuse Brussels of disrespect for its own rules.

EU law guarantees deposits up to 100,000 euros (S$161,600) per customer, per bank. But Commission spokesman Simon O'Connor said those guarantees only existed "in the event of a bank failure".

"In this case, we are not talking about such a situation, we are talking about a one-off levy which will be applied as a fiscal measure, to all bank accounts in Cyprus," he told a regular briefing in Brussels.