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
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

Guatemala Mudslide Death Toll Rises to 86

Death toll is expected to continue to rise as emergency crews dig through tons of earth for an estimated 350 people still missing More

Goodbye Pocahontas: Photos Reveal Today's Real Native Americans

Weary of stereotypes, photographer Matika Wilbur is determined to reshape the public's perception of her people More

Debris Found in Search for Missing Ship

Objects located Sunday have not yet been confirmed to be from the 240 meter container ship, El Faro, which disappeared in the eye of Hurricane Joaquin, according to US Coast Guard More

This forum has been closed.
Comment Sorting
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.
Russia’s Syria Involvement Raising Concerns in Europei
Luis Ramirez
October 02, 2015 4:45 PM
European nations are joining the United States in demanding that Russia stop targeting opposition groups other than the Islamic State militants as Russian warplanes continue to conduct raids in Syria. The demand came in a statement from Britain, France, Germany, Qatar, Saudi Arabia, Turkey and the United States Friday. VOA Europe correspondent Luis Ramirez reports.

Video Russia’s Syria Involvement Raising Concerns in Europe

European nations are joining the United States in demanding that Russia stop targeting opposition groups other than the Islamic State militants as Russian warplanes continue to conduct raids in Syria. The demand came in a statement from Britain, France, Germany, Qatar, Saudi Arabia, Turkey and the United States Friday. VOA Europe correspondent Luis Ramirez reports.

Video First Self-Driving Truck Debuts on European Highways

The first automated semi-trailer truck started its maiden voyage Friday, Oct. 2, on a European highway. The Daimler truck called 'Actros' is the first potentially mass-produced truck whose driver will be required only to monitor the situation, similar to the role of an airline captain while the plane is in autopilot mode. VOA’s George Putic reports.

Video Nano-tech Filter Cleans Dirty Water

Access to clean water is a problem for hundreds of millions of people around the world. Now, a scientist and chemical engineer in Tanzania (in East Africa) is working to change that by creating an innovative water filter that makes dirty water safe. VOA’s Deborah Block has the story.

Video Demand Rising for Organic Produce in Cambodia

In Cambodia, where rice has long been the main cash crop, farmers are being encouraged to turn to vegetables to satisfy the growing demand for locally produced organic farm products. Daniel de Carteret has more from Phnom Penh.

Video Migrant Influx Costs Europe, But Economy Could Benefit

The influx of hundreds of thousands of refugees and migrants is testing Europe’s ability to respond – especially in the poorer Balkan states. But some analysts argue that Europe will benefit by welcoming the huge numbers of young people – many of them well educated and willing to work. Henry Ridgwell reports from London.

Video Botanists Grow Furniture, with Pruning Shears

For something a bit out of the ordinary to furnish your home, why not consider wooden chairs, crafted by nature, with a little help from some British botanists with an eye for design. VOA’s Jessica Berman reports.

Video New Fabric Helps Fight Dust-Related Allergies

Many people around the world suffer from dust-related allergies, caused mainly by tiny mites that live in bed linen. Polish scientists report they have successfully tested a fabric that is impenetrable to the microscopic creatures. VOA’s George Putic has more.

Video Burkina Faso's Economy Deeply Affected by Political Turmoil

Political turmoil in Burkina Faso over the past year has taken a toll on the economy. The transitional government is reporting nearly $70 million in losses in the ten days that followed a short-lived coup by members of the presidential guard earlier this month. The crisis shut businesses and workers went on strike. With elections on the horizon, Emilie Iob reports on what a return to political stability can do for the country's economic recovery.

Video Fleeing Violence, Some Syrians Find Refuge in Irbil

As Syrians continue to flee their country’s unrest to seek new lives in safer places, VOA Persian Service reporter Shepol Abbassi visited Irbil, where a number Syrians have taken refuge. During the religious holidy of Eid al-Adha, the city largely shut down, as temperatures soared. Amy Katz narrates his report.

Video Nigeria’s Wecyclers Work for Reusable Future in Lagos

The streets and lagoons of Africa's largest city - Lagos, Nigeria - are often clogged with trash, almost none of which gets recycled. One company is trying to change that. Chris Stein reports for VOA from Lagos.

Video Sketch Artist Helps Catch Criminals, Gives a Face to Deceased

Police often face the problem of trying to find a crime suspect based on general descriptions that could fit hundreds of people in the vicinity of the crime. In these cases, an artist can use information from witnesses to sketch a likeness that police can show the public via newspapers and television. But, as VOA’s Greg Flakus reports from Houston, such sketches can also help bring back faces of the dead.

Video Thailand Set to Build China-like Internet Firewall

Thai authorities are planning to tighten control over the Internet, creating a single international access point so they can better monitor content. VOA Correspondent Steve Herman reports from Bangkok on what is being called Thailand’s own "Great Firewall."

Video Croatian Town’s War History Evokes Empathy for Migrants

As thousands of Afghanistan, Iraqi and Syrian migrants pass through Croatia, locals are reminded of their own experiences with war and refugees in the 1990s. VOA's Daniel Schearf reports from the town of Vukovar, where wartime scars still are visible today.

Video Long Drought Affecting California’s Sequoias

California is suffering under a historic four-year drought and scientists say even the state's famed sequoia trees are feeling the pain. The National Park Service has started detailed research to see how it can help the oldest living things on earth survive. VOA’s George Putic reports.

VOA Blogs