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Cyprus in limbo after bank levy rejection

Mar 20 2013 13:42 Sapa

Members of parliament vote against a crucial plan to seize a part of depositors' bank savings, in Nicosia. (Philippos Christou, AP)

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Nicosia - Cypriots faced uncertainty on Wednesday after parliament rejected a controversial levy on savings that had been agreed with international creditors as part of a bailout deal.

Lawmakers on Tuesday evening overwhelmingly rejected plans to apply a one-off tax of up to 10% on people's bank deposits, leaving decision makers scrambling on how to avert the Mediterranean island's bankruptcy or exit from the eurozone.

The euro was slightly down on the dollar, while the German stock market lost 0.6% during early morning trading Wednesday.

"The decision was the right one to take, but I would be lying if I said I am not worried - we need help and we need it now," said 50-year-old Michalis Michael, a shopkeeper in central Nicosia.

Banks across the island remained closed as the government and the country's central bank were working on an alternative proposal to find €5.8bn in funds, as requested by the European Union and the International Monetary Fund.

The eurozone, together with IMF, has asked the Cypriot government to raise the amount as part of negotiations for a €10bn package to bail out its banks and shore up the country's public finances.

Banks were not expected to reopen until Tuesday, according to news reports, although no official decision had yet been taken by the central bank.

ATMs have been dispensing cash, while credit and debit cards were working normally, although electronic transfers continued to be blocked, bank officials confirmed to dpa.

For the time being, the European Central Bank has vowed to continue to provide liquidity to the island's banks.

Cyprus' influential Orthodox Church has offered to help, with Archbishop Chrysostomos II saying the church was willing to mortgage its properties to invest in government bonds.

Nicosia was looking to renegotiate its bailout deal, with President Nicos Anastasiades due to meet creditors later in the day.

Meanwhile, Finance Minister Michalis Sarris was in Moscow to see if an existing loan of €3bn taken out in 2011 with Russia could be extended or increased to €5bn.

"We had a good meeting - no decision has been made - discussions will continue later in the day," Sarris said after he emerged from the talks in Moscow.

Anastasiades had a telephone conservation the night before with Russian President Vladimir Putin, whose country holds billions of euros in Cypriot banks.

Reports said Cyprus would attempt to also strike a deal with Moscow for the sale of troubled Popular Bank of Cyprus, known as Laiki, as well as the Bank of Cyprus.

Cypriot state broadcaster RIK said Russia would likely seek compensation for such an investment, possibly in the form of a naval port in Cyprus for the Russian fleet, and access to the country's natural gas reserves.

Anastasiades is also believed to be looking at the option of making use of social security fund reserves, which amount to €5bn, and offering depositors with more than €100 000 natural gas-indexed bonds in return for voluntarily paying a levy.

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