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Cyprus to hold crisis talks after bailout rejection

Protesters had gathered outside parliament in Nicosia to oppose the deal

 

Political leaders in Cyprus are to meet for emergency talks after its parliament overwhelmingly rejected an international bailout deal.

Cypriot President Nicos Anastasiades will meet party leaders to hammer out a Plan B after a one-off tax on savings failed to get the support of any MPs.

Finance Minister Michalis Sarris is in Moscow to seek help from Russia, which has heavy investments in Cyprus.

Germany says banks in Cyprus may never reopen if a bailout is not agreed.

Banks have been shut until Thursday to prevent mass withdrawals. The stock exchange remains closed.

President Anastasiades has called the emergency meeting of party leaders for Wednesday morning to "examine alternative plans to address the situation that may arise following... the parliamentary vote", his office said.

Bank restructuring, a bond issue and more Russian funding are possible options.

'Fully respected'

The controversial levy had been proposed as the condition for a 10bn-euro (£8.7bn; $13bn) European Union and International Monetary Fund bailout. Cyprus was expected to raise 5.8bn euros through the one-off tax on bank savings.

The plan was altered on Tuesday to exempt savers with less than 20,000 euros (£17,000), but a 6.75% charge on deposits of 20,000-100,000 euros and a 9.9% charge for those above 100,000 euros remained.

However, parliament rejected the deal, with 36 MPs voting against it, 19 abstaining and none in favour.

Protesters outside parliament reacted with joy at the decision.

Mr Anastasiades said he "fully respected" the vote.

He said he had spoken to Russian President Vladimir Putin, as Cyprus sought alternative financing.

Mr Sarris is meeting his Russian counterpart Anton Siluanov on Wednesday to discuss the easing of the terms on a 2.5bn euro loan Moscow gave Cyprus in 2011 - and the possibility of further funding.

He said on Wednesday he was hopeful of a new loan agreement.

Cyprus has attracted money through its lower taxes, with Russians holding between a third and half of all Cypriot deposits.

Russian private and corporate deposits are believed to total about $30bn.

Mr Putin had called the bailout deal "unfair, unprofessional and dangerous".

Analysts say Russia may provide more funding in return for interests in Cyprus's offshore energy fields.

After Cyprus rejected the vote, Dutch Finance Minister Jeroen Dijsselbloem said that eurozone finance ministers still stood "ready to assist Cyprus in its reform efforts".

However, German Finance Minister Wolfgang Schaeuble warned Cyprus that its crisis-stricken banks might never be able to reopen if it rejected the bailout.

He said major Cypriot banks would be "insolvent if there are no emergency funds".

Mr Schaeuble said the banking system in Cyprus was "bloated" and "not sustainable".



"Someone needs to explain this to the Cypriots", he said.

Meanwhile, the UK Ministry of Defence said on Tuesday evening that a plane carrying 1m euros had arrived in Cyprus as a contingency measure to provide military personnel and their families with emergency loans.

The money is to be used for British personnel and their families if cash machines and debit cards stop working.

 

Analysis

Mark Lowen BBC News, Nicosia

There may have been jubilation among many Cypriots at Tuesday night's parliamentary defeat of the hated banking tax, but now the country faces a tough reality.

The EU bailout has been derailed and Cyprus is edging towards bankruptcy. But talks are also continuing with the EU to find a credible alternative.

The eurozone's third smallest economy has just sent a resounding message of defiance to Brussels. And the impact will spread far beyond this tiny island.

 


Date: 2015-12-18; view: 713


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