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Cyprus Lawmakers Poised to Reject Bailout

A Greek Orthodox priest walks a branch of Bank of Cyprus in Athens, March 19, 2013.

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Selah Hennessy

March 19, 2013

LONDON — Cypriot president Nicos Anastasiades is predicting the island nation's parliament will reject a bailout plan demanded by international lenders that calls for taxing the savings accounts of depositors at the country's banks.

Anastasiades, who won election last month, told reporters Tuesday that lawmakers do not think the tax is fair.

"The feeling I'm having is that the house is going to reject the bill," he said. "Because they feel and they think it's unjust and that it is against the interests of Cyprus at large."

While Anastasiades said government officials have a back-up plan, but did not elaborate.

On Saturday the government of Cyprus agreed to a plan with the European Union and the International Monetary Fund that would make it eligible for a $13-billion bailout to prop up its fragile banking system.

In return Cyprus will have to raise $7.5 billion. The deal hinges on Cyprus levying a tax on savings accounts. Under the current plan, balances under $130,000 will be hit with a one-time tax of just under 7 percent; savings above that threshold will be taxed just under 10 percent.

But the plan has received a major backlash. The president’s Democratic Rally party holds only 20 seats in the 56-member Assembly and many politicians have expressed their opposition to the plan.

Bank of Cyprus employees sit in front of riot police during a protest outside Greece's Finance Ministry as the bank remains closed for third day in central Athens, March 21, 2013.
People line up at an ATM outside a closed Laiki Bank branch in Nicosia, Cyprus, March 21, 2013.
Employees of the Bank of Cyprus take part in a rally in solidarity with Cyprus outside the headquarters of the bank in Athens, Greece, March 20, 2013.
International Monetary Fund mission chief Delia Velculescu arrives for a meeting with Cypriot President Nicos Anastasiades at the presidential palace in Nicosia, Cyprus, March 20, 2013.
A man walks by graffiti that reads "Troika out" in the old city of capital Nicosia, Cyprus, March 19, 2013.
Demonstrators raise their arms in protest as Cypriot President Nicos Anastasiades's convoy drives to the parliament in Nicosia, Cyprus, March 18, 2013.
A protester shouts slogans outside of parliament during a meeting in Nicosia, Cyprus, March 18, 2013.
Cypriot President Nicos Anastasiades arrives at parliament in Nicosia, Cyprus, March 18, 2013.

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Democratic Party member Athina Kyriakidou says levying a tax on savers is a proposal that has not been introduced in any previous euro-bailout deal, but it could set a new precedent.

"They are going to implement this policy to the other countries," she said. "So I ask for solidarity from all the other Mediterranean countries — Spain, Italy — because we have to protect ourselves; we have to protect our economy from this catastrophical decision of Troika and of the ministers of the euro group."

The European Union and the International Monetary Fund have said the proposed levy is specifically targeted at Cyprus and will not be a benchmark plan for other countries.

The tax has also met with opponents overseas. Almost half of bank deposits in Cyprus belong to foreigners, the majority of which are thought to be Russian. Russian President Vladimir Putin has called the bank tax "dangerous" and Russia’s finance minister Anton Siluanov said the levy could have an impact on a loan worth more than $3 billion made to Cyprus in 2011.

The president of the European Party in Cyprus, Dimitris Silouris says the vote will not pass because the deal proposed by international lenders would be bad for the Island.

"Their aim is not to help Cyprus," said Silouris. "Their aim is to destroy the services sector of Cyprus and attack foreign investors, mainly the Russians. If they have differences with the Russians, they have to solve it not over Cyprus, but in other fields."

Negotiations about revising the planned tax were taking place Tuesday. One proposal would exclude savings under $25,000 from the levy.