The European Central Bank said today that the botched Cyprus bailout caused depositors to flee banks in many of the Eurozone countries in April. Cyprus bailout shocked the world because it was the first time bank depositors were taxed as a part of the deal to bailout struggling banks in the country.


Levying taxes on bank deposits triggered fears that other European countries may follow suit. Senior European official tried to stress that the Cyprus bailout was unique and depositors in other countries may not be taxed. But people, mostly in PIIGS countries, feared that the governments may tax their savings as well in an attempt to revive the moribund banking system.

The European Central Bank said in its report that bank deposits in most of the countries in the region declined in April. Though a lot of the money taken out was deposited in other countries of the region that are considered relatively safer. In total, household deposits increased by €10 billion in April.

Cyprus The Most Affected Country

Undoubtedly, Cyprus was the most affected country where private deposits declined 7.3 percent or €3.2 billion to €41.32 billion in April. This figure includes only real deposit flights by savers, and not the write-downs the government imposed on uninsured deposits. Greece also felt the shivers. Deposits in Greece declined 1.6 percent or €2.8 billion on the month. It is still 10 percent higher than its lowest level in June 2012.

Private deposits in Spain plunged 1.6 percent in April, and are down 6.6 percent from the same period last year. In Slovenia deposits skidded by 1.9 percent while Netherlands witnessed a 0.8 percent decline in private deposits. However, bank deposits in Germany, Belgium, France, Austria and Estonia increased as banks registered greater inflows.

The Wall Street Journal said that an immediate loss of funds at several banks has hampered local lending, which continues to decline on the month-on-month basis in most of the European countries where bank deposits have fallen. The ECB said that the volume of debts issued to businesses across the region plunged by €17 billion in April, the biggest monthly decline this year.