Cyprus’s Parliament overwhelmingly rejected a proposed levy on bank deposits as a condition for a European bailout yesterday, throwing eurozone efforts to rescue the latest casualty of the currency area’s debt crisis into disarray.
The vote by the small state’s legislature was a stunning setback for the 17-nation eurozone, after lawmakers in Greece, Portugal, Ireland, Spain and Italy had repeatedly accepted unpopular austerity measures over the last three years to secure Euro-pean aid.
The rejection, with 36 votes against, 19 abstentions and one absence, brought the east Mediterranean island, one of the smallest European states, to the brink of financial meltdown.
EU countries said before the vote that they would withhold €10 billion in bailout loans unless depositors in Cyprus shared the cost of the rescue, and the European Central Bank has threatened to end emergency lending assistance for teetering Cypriot banks.
But jubilant crowds outside Parliament broke into applause, chanting: “Cyprus belongs to its people.”
“The voice of the people was heard,” said Andreas Miltiadou, a 65-year-old pensioner among the demonstrators.
Newly elected President Nicos Anastasiades earlier told reporters he expected Parliament to reject the tax on bank deposits, “Because they feel and they think that it is unjust and it’s against the interests of Cyprus at large.”
Europe’s demand at the weekend that Cyprus break with previous EU practice and impose a levy on bank accounts sparked outrage among Cypriots and unsettled financial markets.
Anastasiades refused to accept a levy of more than 10 per cent on deposits above 100,000 euros, which meant taxing smaller accounts too. That would have hurt ordinary savers with deposits that they thought came with a state guarantee.
Cypriot Finance Minister Michael Sarris flew to Moscow yesterday to seek Russian financial assistance. He denied by text message reports that he had resigned, which rattled nerves as lawmakers were poised to vote.
Stunned by the backlash, eurozone finance ministers urged Nicosia on Monday to avoid hitting accounts below €100,000, and instead increase the levy on big accounts, which are unprotected by the state deposit guarantee.
The European Union and International Monetary Fund are demanding Cyprus raise €5.8 billion from depositors to secure its bailout, needed to rescue its financial sector.
A revised draft bill would have exempt savings under €20,000 from the planned 6.75 per cent levy on deposits of less than €100,000, leaving a shortfall, but that was not enough to sway lawmakers, even in the ruling party, to accept the tax.
Stunned Cypriots emptied cash machines over the weekend and banks were to remain shut until tomorrow to avoid a bank run. The island’s stock exchange also suspended trading for another two days.