Cyprus decisively rejects EU bailout plan

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Tuesday, 19 March 2013 19:57

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By a Newsnet reporter

The parliament of Cyprus has rejected the EU bailout plan which would have imposed a levy on all Cypriot bank accounts which was meant to raise €5.8 billion (£4.96bn), towards the country’s financial rescue.

In return for raising the funds from Cypriot bank accounts, the financially beleaguered island was promised an injection of €10 billion from the EU in order to forestall the collapse of the island’s main banks.

However the 56-seat parliament voted overwhelmingly against the plan with 36 votes against and 19 abstentions.  There were no votes in favour.

The finance ministry had already altered the original plan, proposing an exemption for savers with deposits less than €20,000, but opposition had remained fierce.

The levy was originally intended to be imposed on Monday, but the plan was received with widespread outrage amongst Cypriots who found themselves liable for paying for the errors and misdemeanours of the banking sector out of their own pockets.  Under the original terms of the plan, savers with less than €100,000 (approx £85,250) would have to pay a one-off levy of 6.75% of their savings, while those with more than €100,000 in their accounts would have to pay 10%.

All banks on the island are closed until Thursday, and electronic transfers have been suspended in an effort to prevent a run on the banks.  Many accounts in the island’s banks are held by wealthy Russians, 20% of the total funds held by Cypriot banks belong to Russian investors.

Furious MPs took turns in the Cypriot parliament in Nicosia on Tuesday to decry the harsh terms of the bailout, aimed at saving Cyprus from bankruptcy.  MPs described the EU plan as “blackmail”.  Outside parliament equally angry crowds called for a “No” vote and held up signs warning that other financially crippled European nations like Italy and Spain could be next.

Parliamentary speaker Yiannakis Omirou, of the socialist Edek party, told MPs, “There can only be one answer: no to blackmail.”

All the country’s major parties decided to oppose the draft law that provides for the haircut on bank accounts in excess of 20,000 euros, as reports said that even ruling Democratic Rally (DISY) has decided to abstain from voting.

Earlier on Tuesday, Cyprus President Nicos Anastasiades told Swedish television that there is an alternative plan that the Nicosia government will follow should the bill be voted down. “We have a Plan B,” he said.

According to state broadcaster CyBC, the alternative plan involves the nationalisation of social security funds and the creation of a state property company that will offer guarantees to battered sectors of the economy, with the involvement of both the European Union and the Russian government.

President Anastasiades has now called an emergency meeting of political party leaders on Wednesday morning to discuss what steps to take now the terms of the EU bailout have been decisively rejected.

Earlier on Tuesday, a plane loaded with €1 million in cash flew to the island to ensure that British armed forces stationed on the island have access to cash during the crisis.  The UK government had already promised to compensate members of the armed services who lost money as a result of the one-off levy, but thousands of British citizens resident on the island would not be protected.

Tuesday’s vote will send shockwaves throughout the eurozone, and risks precipitating a new crisis for the troubled single currency.