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Economy

France dubs Cyprus savings tax mistake

media Cypriots demonstrate against the bailout plan Reuters/Yorgos Karahalis

The French government on Wednesday declared the European Union’s Cyprus bailout a “mistake”, at least in the form that the Cypriot government presented to its people. But Industrial Recovery Minister Arnaud Montebourg earlier judged it "natural" that a tax haven be forced to help save Europe’s finances.

“History shows that presenting a plan as the Cypriot authorities did is an error,” French government spokesperson Najat Vallaud-Belkacem said after Wednesday’s cabinet meeting.

Dossier: Eurozone in crisis

“It’s legitimate that the Cypriot population opposes the taxation of small savings deposits,” she said, adding that the plan was “unfortunate”.

After Cypriots queued to withdraw their savings from banks, the country’s parliament rejected an EU-approved plan for a one-off tax of 6.75 per cent on savings under 100,000 euros and 9.9 per cent on those above that figure and an amended version that exempted savings below 20,000 euros.

France supported a tax exclusively on deposits over 100,000 at a Eurogroup meeting in Brussels on Saturday, Vallaud-Belkacem said.

IMF chief Christine Lagarde, a former French finance minister, is said to favour that option.

But the European Commission on Wednesday insisted that Cyprus must raise 5.8 billion euros in order to receive 10 billion euros from the EU.

And the commission said that the decision to tax all savers was unanimously agreed at the Brussels meeting, although sources say that a rate of approximately 3.0 per cent for small savers was suggested.

Before Vallaud-Belkacem’s statement, Montebourg told France Inter radio that it was “natural” that tax havens should “pay their share towards the recovery of European public finances”.

Pointing out that he had gone to Cyprus with current Education Minister Vincent Peillon in 2000 to investigate the country’s banking sector, Montebourg said that “a significant amount” of Cyprus’s economic activity involves providing a refuge for tax fraud and evasion.

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