IMF: banks needs were fixed too low (Part I)

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Jean-Claude Trichet Announces ECB Rate DecisionInternational lenders have increased pressure on Cyprus by stating that Corporate Tax needs to be raised in addition to introducing a levy on capital gains and a financial transaction tax. Eurozone officials explained that these measures are required to be introduced in order to enable Cyprus to repay a bailout. Cyprus has put the figure for bailout at 17 billion Euros with the majority required to recapitalize banks however during a meeting with the Central Bank the IMF explained that the figure requested for bank recapitalization was too optimistic putting the government in a difficult position. The IMF has suggested that a figure of 10 billion Euros is more realistic. The Cyprus Government and the troika has highlighted that no decisions had yet been taken on any of proposed new taxes. ‘All options are on the table now, but there is no agreement as yet’. One option presented was that capital gains tax could be introduced for three years and provide the government with extra revenue of 200-300 million euros. Also the corporate tax rate which now is one of the lowest in the EU at 10% could be raised to 12.5%. Another option is the introduction of the financial transaction tax (FTT), which would be applied by 11 countries from next year, a troika proposal that Cyprus strongly opposes, perhaps even more so than the raising of corporate tax. This would have a negative impact on bank operations and greatly affect state revenues as foreign clients would opt not to carry out transactions through Cyprus. Lenders also want to privatize profitable state companies. The unemployment figure is also worrying with a current rate of 14.7% which is set to rise over the coming months.