Topic: Cyprus Bailout
Originally published at 22:44
ATHENS, March 19 (RIA Novosti) - Parliament in Cyprus on Tuesday overwhelmingly rejected a bill aimed at charging steep levies on bank deposits, jeopardizing the country’s chances of securing a desperately needed international bailout.
Thirty-six deputies in the 56-seat parliament voted against the bill, while 19 abstained. None voted in support.
The proposal to dip into bank savings to boost the government’s coffers provoked intense anger among the Cypriot population and foreign account-holders based abroad, but its failure now leaves Cyprus closer to effective bankruptcy.
Consultations will now be held with the president on finding another solution to the crisis that some fear could send the nation of 1.1 million tumbling out of the eurozone.
The bill rejected Tuesday envisioned a levy of 6.75 percent on deposits of less than 100,000 euros ($128,950) and of 9.9 percent on larger deposits.
International creditors in eurozone countries and the International Monetary Fund said their 10 billion euro ($13 billion) rescue package for debt-laden Cyprus was contingent on the one-off deposit levy, which stood to yield some 5.8 billion euros ($7.5 billion) in revenues for the Cyprus budget.
Those plans incited an angry response on Monday from Russian President Vladimir Putin, who called the move “unfair, unprofessional and dangerous.”
Russian Prime Minister Dmitry Medvedev compared the measure to “a confiscation of someone else’s money.”
Russian banks and companies have favored Cyprus since the 1990s, taking advantage of the island nation’s low taxes and easy business regulations.
Russian banks held about $12 billion in deposits with Cypriot banks at the end of 2012, while Russian corporate deposits accounted for another $19 billion, according to estimates by Moody’s international rating agency.
Russian individuals and businesses had stood to lose around $2 billion if the levy proposal had gone through.
But if the island nation defaults on its obligations, Russian depositors risk losing over $50 billion, considering loans granted by Russian banks to Cyprus-registered companies, according to Moody's.
Cyprus Finance Minister Michalis Sarris headed to Moscow on Tuesday for talks expected to focus on conditions under which Russia could help Cyprus resolve its financial problems. In one scenario, Russia may consider extending a 2.5 billion euro ($3.2 billion) loan for a five-year period.
Russia granted Cyprus a 2.5-billion euro loan in 2011 at the below-market rate of 4.5 percent to help the eurozone member state service its debt.
In 2012, Cyprus asked Russia for a new five billion euro ($6.4 bln) loan to partially cover its budget deficit.
Updates with background, recasts.
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- jgCyprus votes against theft13:26, 20/03/2013The IMF/EU idea to "tax" bank accounts in Cyprus is disgraceful and this illegal confiscation would amount to nothing less than theft. With the knowledge that so much Russian money is invested in Cypriot banks, the IMF and EU idea is clearly to seize money from outside the Eurozone to prop up the failing Euro.
Even if the Cypriot seizure does not go ahead, a precedent has now been set that this could happen in other indebted Eurozone countries. Anyone with bank accounts in any of these EZ countries will probably need to consider if their money is safe.
On the bright side, the vote in the Cypriot parliament shows they do not want to harm their biggest investor. It is probably in Russia's long term interests to reciprocate by helping Cyprus with additional loans. An interesting idea is that such loans could be made part of a deal to give Gazprom rights to exploit Cypriot offshore gas reserves.
News that Moscow Mayor Sergei Sobyanin would resign in order to run for the mayoral election in September came as quite a shock. Sobyanin’s political potential is fairly dubious, not to mention his approval ratings. He has not finished many of the projects he initiated and the electoral effect from these projects is expected to come a bit later than September 2013. Sobyanin’s opponents were not entirely unprepared for this blitzkrieg.