News / Europe

Cyprus Rejects Bailout Deal, Bank Tax

Protesters stand during parliamentary vote on a bank tax plan March 19, 2013 in NicosiaProtesters stand during parliamentary vote on a bank tax plan March 19, 2013 in Nicosia
x
Protesters stand during parliamentary vote on a bank tax plan March 19, 2013 in Nicosia
Protesters stand during parliamentary vote on a bank tax plan March 19, 2013 in Nicosia
VOA News
The Cypriot parliament has overwhelmingly rejected a bailout plan demanded by international lenders that would have taxed the savings accounts of depositors at the island nation's banks.

No lawmaker voted in favor of the $13 billion rescue package Tuesday night, with 36 voting against it and 19 abstaining.

The vote left the fate of the bailout in question and raised the possibility that the Cypriot government could default on its financial obligations or even end its membership in the 17-nation euro currency union. Cyprus, a longtime offshore tax haven, had sought to use much of the bailout to refund its beleaguered banks that have been weighed down with losses from bad loans.

But the bailout terms - set by the International Monetary Fund, the European Central Bank and Cyprus' eurozone neighbors - called for the tiny country to impose what they said was a one-time tax on bank deposits, nearly 10 percent on the largest accounts above $130,000.

The proposal drew the immediate ire of Cypriots, as well as Russian President Vladimir Putin. Russian oligarchs have vast sums parked in Cypriot accounts.

Cypriot President Nicos Anastasiades, who won election last month, has predicted earlier that parliament would reject the bailout deal because it was "against the interests" of the country. Asked what alternative plan he might have, Mr. Anastasiades said, without elaborating, "We have our own plans."

One international economics expert, Andreas Hauskrecht of the Indiana University business school, told VOA he thinks Cyprus will default on its obligations if a bailout plan is not approved.

“Taxing deposits is not a very smart idea. This is where the whole mess started.  And if they don’t get the third plan, the compromise, through parliament, I actually don’t see how the Europeans can continue with the bailout without completely losing credibility. In Europe, you can’t rule out anything, but I think then a default is likely,” Hauskrecht said.

The deal with the lenders called for the tax on savings accounts to contribute $7.5 billion toward the country's bailout. Cypriot lawmakers discussed revising the tax to eliminate the tax on accounts with less than $25,000. But that plan would have fallen short of the $7.5 billion demanded by the country's lenders.

Cypriot banks are closed until Thursday to keep panicked investors from withdrawing their cash.

One Russian economist, Renaissance Capital's Ivan Tchakarov, said his country's depositors never envisioned that their savings would be taxed in Cyprus.

"There has been this kind of unwritten contract between the Russian depositors who have placed money in Cyprus and the Russian government, that it's actually safe for us to put money there, because there's a very strong relationship between Cyprus and Russia. We know that our government has extended loans to Cyprus. We never thought that such a thing might happen. So I think this contract has been violated and I think it will be more challenging for a political establishment here in Russia to deal with this issue,'' Tchakkarov said.

The Cypriot economy accounts for only a very small fraction of the eurozone's economic fortunes, but none of the previous bailouts for Greece, Portugal, Ireland and the Spanish banking system has taxed savings. Some analysts said they fear that taxing deposits in Cyprus could set a precedent that might be followed in other debt-ridden countries in the union and ignite a run on banks to withdraw money.

Hauskrecht said Europe's fear of economic calamity is the driving force for a Cyprus bailout.

"Overwhelmingly, European leaders fear that if Cyprus hits the wall we will have immediate effects on Greece, Portugal, etc. etc. And that’s the reason for the bailout package," Hauskrecht said.

You May Like

At Khmer Rouge Court, Long-Awaited Verdict Approaches

First phase of trial, which is coming to an end, has focused on forced exodus of Phnom Penh in 1975 - and now many are hopeful justice will be served More

Video When Fighting Eases, Gazans Line Up at Bakeries

When there is a lull in the conflict, residents who have been hunkered down in their apartments rush out to stock up on food and other necessities More

Video Information War Rages Alongside Real One in Ukraine

Downing of Malaysian airliner, allegations of cross-border shelling move information war in war-torn country to a new level More

This forum has been closed.
Comment Sorting
Comments
     
by: jeth from: philippines
March 20, 2013 2:38 AM
The only way that will solve this FINANCIAL CRISIS in CYPRUS is to locally implement the GLASS STEAGAL ACT.CYPRUS must not yield down to the IMF EURO and others who are asking the CYPRUS GOVERMENT to taxed its bank depositors or implement an AUSTHERITY CUTS.


by: Davis K. Thanjan from: New York
March 19, 2013 4:48 PM
Let Cyprus handle their economic problem themselves. Cyprus is a small country with less than one million people holding the euro hostage and the rest of the world concerned. Any bail out of Cyprus will destroy the economy of Euro countries. Russia is the country that should be more concerned about the economy of Cyprus with more than 30 billion euro in Cyprus. accumulated by the tax dodgers, criminals, drug trafickers, corrupt politicians and money lauderers from Russia, in additon to billions of dollars worth of deposits from Russian banks. Let Russia handle the economic problems of Cyprus.

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Information War Rages Alongside Real One in Ukrainei
X
Al Pessin
July 31, 2014 8:13 PM
The downing of the Malaysian airliner two weeks ago, and allegations that Russians are shelling Ukrainian troops across the border, have moved the information war swirling around the Ukrainian conflict to a new level. VOA's Al Pessin reports from Kyiv.
Video

Video Information War Rages Alongside Real One in Ukraine

The downing of the Malaysian airliner two weeks ago, and allegations that Russians are shelling Ukrainian troops across the border, have moved the information war swirling around the Ukrainian conflict to a new level. VOA's Al Pessin reports from Kyiv.
Video

Video When Fighting Eases, Gazans Line Up at Bakeries

When there is a lull in the conflict in Gaza, residents who have been hunkered down in their apartments rush out to stock up on food and other necessities. Probably the most important destination is the local bakery. VOA’s Scott Bobb reports from Gaza City.
Video

Video US-Funded Program Offers Honduran Children Alternative to Illegal Immigration

President Obama and Central American leaders recently agreed to come up with a plan to address poverty and crime in the region that is fueling the surge of young migrants trying to illegally enter the United States. VOA’s Brian Padden looks at one such program in Honduras - funded in part by the United States - which gives street kids not only food and safety but a chance for a better life without, crossing the border.
Video

Video 'Fab Lab' Igniting Revolution in Kenya

The University of Nairobi’s Science and Technology Park is banking on 3-D prototyping to spark a manufacturing revolution in the country. Lenny Ruvaga has more for from Nairobi's so-called “FabLab” for VOA.
Video

Video Gazans in Shelled School Sought Shelter

Israel's air and ground assault against Hamas-led fighters in Gaza has forced many Palestinians to flee their homes, seeking safety. But safe places are hard to find, as VOA’s Scott Bobb reports from Jabaliya.
Video

Video Rapid Spread of Ebola in West Africa Prompts Global Alert

Across West Africa, health officials are struggling to keep up with what the World Health Organization describes as the worst ebola outbreak on record. The virus has killed hundreds of people this year. U.S. President Barack Obama and other world leaders are watching the developments closely as they weigh what actions, if any, are needed to help contain the disease.
Video

Video Michelle Obama: Young Africans Need to Embrace Women's Rights

U.S. first lady Michelle Obama urged some of Africa's best and brightest to advocate for women's rights in their home countries. As VOA's Pam Dockins explains, Obama spoke to some 500 participants of the Young African Leaders Initiative, a six-week U.S.-based training and development program.
Video

Video Immigrant Influx on Texas Border Heats Up Political Debate

Immigrants from Central America continue to cross the U.S.-Mexico border in south Texas, seeking asylum in the United States, as officials grapple with ways to deal with the problem and provide shelter for thousands of minors among the illegal border crossers. As VOA's Greg Flakus reports from Houston, the issue is complicated by internal U.S. politics and U.S. relations with the troubled nations that immigrants are fleeing.
Video

Video Study: Latino Students Most Segregated in California

Even though legal school segregation ended in the United States 60 years ago, one study finds segregation still occurs in the U.S. based on income and race. The University of California Los Angeles Civil Rights Project finds that students in California are more segregated by race than ever before, especially Latinos. Elizabeth Lee reports for VOA from Los Angeles.

AppleAndroid