Cyprus Parliament to Vote on Savings Levy

Cypriot President Nicos Anastasiades
Georges Gobet | AFP | Getty Images

Cyprus's parliament willdecide on Sunday whether savers must pay a levy on bank depositsunder terms for an international bailout to avert bankruptcy -with approval far from certain.

The euro zone demand on Saturday that savers pay up to 10percent of deposits as a condition for the 10 billion euro ($13billion) drew fury in the eastern Mediterranean islandand caused some jitters elsewhere in the region.

Cypriots after news emerged of bailoutterms which broke a previous euro zone taboo on protectingdepositors in its efforts to address the regional debt crisis.

Newly elected Cypriot President Nicos Anastasiades saidrefusing the bailout would have led to the collapse of theisland's two largest banks, badly singed by their exposure tobailed out neighbour Greece.

The tax on deposits in Cyprus, which accounts for only 0.2percent of the euro zone's economy, is expected to raise up to 6billion euros as a condition for the bailout, mainly needed torecapitalise banks.

Those affected will include rich Russians with deposits inCyprus and Europeans who have retired to the island as well asCypriots themselves.

The size of foreign deposits in Cyprus - estimated at 37percent of the total - was one reason the euro zone agreed tothe tax on savings, to take effect when banks reopen on Tuesday.Cyprus stopped electronic transfers over the weekend.

In Spain, one of four other states getting euro zone helpand seen as a possible candidate for a sovereign rescue,officials were quick to say that Cyprus was a one-off. A Bank ofSpain spokesman said there had been no sign of deposit flight.

Two Cypriot banks in Britain told savers their money wassafe.

Cyprus's parliament was due to convene at 4 p.m. (1400 GMT)in an emergency session to discuss the proposed penalties ondeposits: 9.9 percent for those exceeding 100,000 euros and 6.7percent on anything below that.

Pain or Catastrophe

The choice facing Cyprus was between "the catastrophic scenario of disorderly bankruptcy or the scenario of a painful but controlled management of the crisis," President Anastasiades said in a written statement.

His right-wing Democratic Rally party, with 20 seats in the 56-member parliament, needs support from other factions for a vote to pass.

"The dilemmas are very tough," said Marios Karoyian, head of the Democratic Party, junior partner in the coalition government. "Things are unbelievably hard."

He did not say which way his party would vote on Sunday. It is already split over backing Anastasiades three weeks ago.

Cyprus's Communist party AKEL, accused of stalling on a bailout during its tenure in power until the end of February, was likely to vote against the measure. The socialist Edek party called EU demands "absurd".

"This is unacceptably unfair and we are against it," said Adonis Yiangou of the Greens Party, the smallest in parliament but with the potential ability to swing any vote.

"They have got a gun to our head," he said.

Saving Cyprus's financial sector would have been impossible without the levy because of its size relative to output - more than twice the EU average, Dutch Finance Minister Jeroen Dijsselbloem said in Brussels.