Cyprus lawmakers reject bank tax; bailout in disarray

Tue Mar 19, 2013 7:05pm EDT
 
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By Michele Kambas and Karolina Tagaris

NICOSIA (Reuters) - Cyprus overwhelmingly rejected a proposed levy on bank deposits as a condition for a European bailout on Tuesday, throwing international efforts to rescue the latest casualty of the euro zone debt crisis into disarray.

The vote in the tiny legislature was a stunning setback for the 17-nation currency bloc, angering European partners and raising fears the crisis could spread; lawmakers in Greece, Portugal, Ireland, Spain and Italy have all accepted austerity measures over the last three years to secure European aid.

With hundreds of demonstrators outside the parliament chanting "They're drinking our blood", the ruling party abstained and 36 other lawmakers voted unanimously to reject the bill, bringing the Mediterranean island, one of the smallest European states, to the brink of financial meltdown.

Finance Minister Michael Sarris had already headed to Moscow, amid speculation Russia could offer assistance given the high level of Russian deposits in Cypriot banks. President Nicos Anastasiades, barely a month in office, spoke by phone with Russian President Vladimir Putin after the vote.

Anastasiades was due to meet party leaders at 9 a.m. (0700 GMT) on Wednesday to explore a way forward.

"The voice of the people was heard," 65-year-old pensioner Andreas Miltiadou said among a crowd of demonstrators jubilant after the vote.

EU countries had warned they would withhold 10 billion euros ($13 billion) in bailout loans unless depositors in Cyprus, including small savers, shared the cost of the rescue, an unprecedented step in the stubborn debt crisis.

The European Central Bank had threatened to end emergency lending assistance for teetering Cypriot banks, which were hard hit by the financial crisis in neighboring Greece.   Continued...

 
Protesters shout slogans during an anti-bailout rally outside the parliament in Nicosia March 19, 2013. REUTERS/Yorgos Karahalis