Pension payments to Britons living in Cyprus are being suspended amid growing uncertainty on the island due to an unprecedented raid on bank accounts.
The payments will not be made until the country’s parliament votes on the controversial levy on bank deposits, proposed as part of a £8.6billion bailout by the European Union and IMF.
Treasury Minister Greg Clark said payments had been frozen today to ensure money from the Government reaches its intended recipient.
Stock markets across Europe and Asia also felt the effect of growing economic uncertainty due to the heavily criticised bailout package.
As the Cypriot parliament delayed a crucial vote on the measure for the second time and it was announced that banks will remain closed on Tuesday and Wednesday, angry scenes erupted on the streets of the capital Nicosia.
Protesters who stand to lose ten per cent of their savings stood outside the Parliament building holding anti-German banners which left no doubt where they believe the blame lies for the latest crisis to envelope the eurozone.
Many Britons who have moved to the Mediterranean island face losing thousands in savings as they are unlikely to be compensated, with one MP today calling the move ‘daylight robbery of British pensioners’.
In a statement to Parliament, Mr Clark, Financial Secretary to the Treasury, said withholding pension payments to thousands of Britons allowed the Government to ‘take stock of developments’, but assured expats that their payments were ‘being held safely’.
Mr Clark said expats could opt to switch payments to another bank account and reiterated that the pensions are ‘safe’.
The British government has said it will pay back troops stationed on Cyprus who have cash seized.
He confirmed that members of the armed forces based in Cyprus would be compensated for ‘reasonable losses’, but could not confirm how much this was expected to cost the Government.
Responding to claims from former foreign secretary Jack Straw that the Cypriot banking system had become a ‘haven for Russian money laundering, Mr Clark said the weekend agreement included action to address this issue.
Green Party MP Caroline Lucas said it is ‘immoral and unfair to pilfer the savings of the people of Cyprus’, criticising the UK Government for not fully condemning the levy.
Mr Clark was also targeted for failing to condemn the proposed levy, but retorted that the UK is outside the eurozone and therefore not responsible for the plans.
Asked about whether Britons in other struggling EU countries such as Ireland, Italy and Portugal should repatriate their money, Mr Clark responded: ‘The ECB has said the situation in Cyprus is unique and a study of the situation in Cyprus would confirm that.’
Echoing Mr Clark’s assertion that the bailout is a worry for ‘many of our constituents’, opposition minister Chris Leslie said: ‘It is never a good sign to savers that they would be better putting their savings under the mattress than in a bank.’
Referring to an initial slump in the stock markets this morning, Mr Leslie said that the market reaction ‘may just be the start’.
Russian president Vladimir Putin has also weighed into the row saying that the measure was ‘unfair, unprofessional and dangerous.’
There have been claims that Europe and the IMF who engineered the bailout wanted to enforce the levy because there is a large amount of Russian cash held on Cyprus.
The move was intended to ensure the stability of the island state’s economy, but instead there are fears it could plunge Europe back into crisis.
President Nicos Anastasiades is currently negotiating with minsters at the parliament building in Nicosia under tight security due to rising tensions.
The FTSE 100, which soared to a five-year high in recent days, initially fell by 100 points, or 1.5 per cent, after markets opened, with banking shares particularly suffering.
It closed the day down 31 points at 6457 – 0.5 per cent.
Asian markets also fell, with Japan’s Nikkei ending the day down by 2.5 per cent. The Dow Jones was down 71 points to 14443, in early training but the fall was only 0.5 per cent.
European bank shares also fell more than 2 per cent, as traders warned that the bailout meant it was ‘no longer taboo to touch deposits’.
Traders are worried that the precedent set by the Cyprus move could spark an exodus of capital from other fragile European economies and jeopardise the region’s tentative recovery.
Unlike the previous rescues for Greece, Portugal, Ireland, and Spanish banks, the proposed Cypriot bailout is the first one that dips into ordinary people’s savings.