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Dublin: 8 °C Friday 25 April, 2014

Cyprus postpones crucial vote on unpopular bailout until Tuesday

The president is trying to get parliamentarians to back the bailout deal that slaps a hugely unpopular levy on bank savings.

A man sits and drinks as women use the ATM outside of a Bank of Cyprus branch in Nicosia on Sunday
A man sits and drinks as women use the ATM outside of a Bank of Cyprus branch in Nicosia on Sunday
Image: AP Photo/Petros Karadjias

Updated 11.45am

THE SPEAKER OF the Cyprus parliament has said a vote by lawmakers on a controversial EU bailout that includes the levying of an unprecedented tax on private bank deposits has been postponed to Tuesday.

Yiannakis Omirou told reporters that parliament would convene for the vote at 6pm (4pm Irish time) on Tuesday. The vote had been due to take place this afternoon.

The EU bailout deal slaps a levy on bank savings under harsh terms that have jolted global markets and raised fears of a new eurozone debt crisis.

Negotiators are seeking to soften the blow on small-time depositors, who have been stunned by the announcement that their savings will be skimmed.

As a condition for a desperately-needed €10 billion bailout for Cyprus, fellow eurozone countries and international creditors on Saturday imposed a levy on all deposits in the island’s banks.

Deposits of more than €100,000 will be hit with a 9.9 per cent charge, while under that threshold the levy drops to 6.75 per cent. The proposal must still be passed by parliament.

Private television channel Mega reported that negotiators were seeking to cut the rate to three per cent on deposits under €100,000, and raise it above 10 per cent on deposits more than that amount in a way that would still see the overall sum raised remain at €5.8 billion.

Local Sigmalive news website said a teleconference with the eurogroup could take place on Monday afternoon to discuss the new proposals.

The markets react negatively

A man walks by an electronic stock board in Tokyo today as Asian stock markets reacted negatively to the bailout for Cyprus (AP Photo/Koji Sasahara)

As Cypriots voiced dismay and anger at the levy, global markets were jolted by concerns that events on the Mediterranean island could reignite the eurozone debt crisis and hit confidence in other troubled countries such as Spain and Italy.

Europe’s main stock markets tumbled by more than 1 per cent in early deals as investors reacted to news of the Cyprus bailout deal. Asian equities also fell heavily in earlier trade.

CMC Market analyst Michael Hewson said:

If European policymakers were looking for a way to undermine the public trust that underpins the foundation of any banking system they could not have done a better job

Putin criticises the controversial bank tax

News of the controversial tax also drew a sharp response from Russian President Vladimir Putin, who called it “unfair, unprofessional and dangerous.”

Several analysts said the measure was meant to make sure that Brussels did not spend billions propping up the at-times ill-gotten gains of rich Russians, who are widely believed to have exploited Cyprus’s reputation as a tax haven and as being soft on “dirty money”.

Cyprus has repeatedly denied the allegations and has offered to open its accounts to international inspection.

Estimates vary but the Moody’s rating firm estimates that up to $19 billion in private Russian cash is held in Cyprus. The figure accounts for between a third and half of all Cypriot deposits.

“The least painful option”

People wait to use ATMs in Nicosia on Sunday (AP Photo/Petros Karadjias)

Anastasiades, in an address to the shell-shocked nation on Sunday night, said he had chosen “the least painful option” and that rejecting the EU demands would have seen Cyprus exit the eurozone and face bankruptcy.

“I fully share the unhappiness caused by a difficult and painful decision. That’s why I continue to fight with the eurogroup to amend their decisions in the coming hours to limit the impact on small depositors,” the president said.

Terming it the worst crisis to hit Cyprus since the 1974 Turkish invasion, he gave an assurance that those taking a hit now would be compensated when huge gas offshore gas deposits are eventually exploited, in about 2018.

“Anyone who maintains a deposit for more than two years will receive bonds linked to future state revenues from natural gas – this will reflect half the contribution made in bank tax,” he said.

Depleted ATMs

News on Saturday morning of the levy shocked Cypriots at the start of a three-day holiday weekend, many rushing to cash points and depleting them within hours.

Online transfers were stopped although shoppers were able to use credit cards at supermarkets and at fuel stations.

Anastasiades urged all political parties to ratify the terms of the EU deal when parliament meets on Monday.

Local media said he is struggling to secure even a simple majority for the terms of the bailout in the 56-member parliament in which his conservative DISY parliament holds just 20 seats.

Anastasiades needs to get the legislation ratifying the deal through parliament before banks reopen Tuesday, or face a run on accounts.

But local media reported that the scale of revolt against the agreement among MPs has thrown into disarray his efforts to do so and he may have to declare an additional bank holiday on Tuesday.

- © AFP, 2013

Read: Cypriot president: Bank deposits levy the ‘least painful option’ >

Read: Cyprus may call extra bank holiday to get time to pass unpopular bailout deal >

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