NICOSIA, Cyprus – Cypriot lawmakers Tuesday rejected a critical draft bill that would have seized part of people’s bank deposits in order to qualify for a vital international bailout, with not a single vote in favor.
The rejection leaves Cyprus’ bailout in question. Without external funds, the country’s banks face collapse, and the government could go bankrupt. Nicosia will now have to come up with an alternative plan to raise the money: The government could try to offer a compromise bill that would be more palatable to lawmakers.
The bill, which had been amended Tuesday morning to shield small-deposit holders from the deposit tax, was rejected, with 36 votes against and 19 abstentions. One deputy was absent.
“No to new colonial bonds, no to subjugation, no to national dishonor and raw blackmail,” House Speaker Yiannakis Omirou said during the debate before the vote.
After the vote failed, he said political leaders will have a meeting with the president today to discuss the next steps.
Nicholas Papadopoulos, chairman of Parliament’s Finance Committee, said that banks would remain closed “for as long as we need to conclude an agreement” but stressed that this would be “in the next few days.” Banks had been ordered to remain shut until Thursday while the bill was debated and amended, to prevent a bank run.
Papadopoulos said Cyprus wants a renegotiation of its bailout deal.
But the idea of seizing savings was something Cyprus rejected. “It has not been [implemented] in any other country in Europe, and we don’t wish to be the experiment of Europe.”
Hundreds of protesters outside Parliament cheered in jubilation and sang the national anthem when they heard that the bill had not passed.
Under the original deal reached in Brussels late Friday to qualify for the 10 billion euro bailout from other eurozone countries and the International Monetary Fund, Cyprus had to raise an additional 5.8 billion euros by taxing all bank accounts. Those under 100,000 euros would pay 6.75 percent, and those above that amount would be taxed at 9.9 percent on their deposits.
Facing fury at home and from Russians who make up an estimated one-third of the total amount in Cypriot banks, the government amended the bill Tuesday to exempt small depositors with up to 20,000 euros in the bank.
But the change was not enough for lawmakers. The country’s central bank governor, Panicos Demetriades, had recommended that no accounts be taxed below 100,000 euros – the amount that is supposed to be insured by the state if a bank collapses.
“The credibility of, and trust in the banking sector depends on this,” Demetriades said.
Although Cyprus is the smallest eurozone country to be bailed out, the details of the plan had sent shock waves through the single currency area, as it was the first time that savers’ banks accounts have been directly targeted. Other bailed-out countries such as Greece, Ireland and Portugal have raised funds by imposing new taxes.
Proponents of the deposit seizure argued that it would have made foreigners who have taken advantage of Cyprus’ low-tax regime share the cost of the bailout of the banks, which have been hit hard by their overexposure to bad Greek debt.
Finance Minister Michalis Sarris flew to Moscow on Tuesday to meet with his Russian counterpart, arriving there shortly before the vote – and promptly dismissing rumors that he had offered to resign in the interim.
Andreas Charalambous, a senior official at the ministry, said the aim is to extend repayment of a loan of 2.5 billion euros that Russia granted Cyprus in late 2011 when the country could no longer borrow from international markets.
He said Cyprus was also looking for “potential interest for further investment in the country.”
Opponents say a blanket charge on people’s bank accounts will hurt ordinary Cypriots more, and could shake the confidence of all in the country’s banking sector. At the heart of concerns is the fear of bank runs across Europe.
Charalambous said Cypriot authorities believe that depositors should be protected but that a wholesale exemption for those below 100,000 euros would mean a “disproportionate” burden on large savers and a “very detrimental” effect on economic growth.