Cypriot banks got into trouble after losing some €4.5 billion on their Greek government bond holdings after eurozone leaders decided to write down Greece's debt last year.
Anastasiades didn't provide any specifics on what he would do to try to limit the pain on small depositors, but he explained why he decided to consent to the taxes. Anastasiades, who only assumed the Cypriot presidency on March 1st, had vehemently rejected any idea of going after deposits to help pay for a bailout during the campaign and after his election.
"The solution that we have reached is certainly not the one we wanted, but it is the least painful under the circumstances because above all it leaves the management of our economy in our own hands," Anastasiades said Sunday.
He said the tax would only be as much as the interest collected on deposits over two years and stressed that it would only happen once because it would ensure the bailout wouldn't push the country's debt to unsustainable levels.
Anastasiades said savers would be compensated with bank shares. Moreover, all those depositors who opt to keep their money in Cypriot banks for at least two years would receive government bonds with a value equal to their losses. The bonds will be backed up by future revenue generated from the country's newfound offshore gas deposits.
He said pension and provident funds will remain untouched, and there won't be any need for further salary and pension cuts, or an earlier demand by creditors for a financial transaction tax, which would have damaged Cyprus' financial services-driven economy.
Cypriot lawmakers have already approved a raft of cuts to government worker salaries and pensions as well as tax increases under a preliminary bailout deal.
The Cypriot president said if he hadn't accepted the tax on bank deposits, the European Central Bank would have stopped providing emergency funds to the country's top two lenders which would have led to the collapse of the banking system, the bankruptcy of thousands of small businesses, massive job losses, and ultimately the country's exit from the euro.