Facing eroding support, the new president, Nicos Anastasiades, asked Parliament to postpone until Monday an emergency vote on a measure to approve the bailout terms, amid doubt that it would pass. The euro fell sharply against major currencies ahead of the action, as investors around the world absorbed the implications of Europe’s move.
In an address to the nation, Mr. Anastasiades painted an apocalyptic picture of what would happen if Cyprus did not approve the strict terms: a “complete collapse of the banking sector”; major losses for depositors and businesses; and a possible exit of Cyprus from the euro zone, the 17 countries that use the euro as their currency.
He said he was working to persuade European Union leaders to modify their demands for a 6.75 percent tax on deposits of up to 100,000 euros, a move that would hit ordinary savers.
“I understand fully the shock of this painful decision,” he said, speaking with a grim look on his face as he stood between the Cypriot and European Union flags in the presidential palace. “That is why I continue to fight so that the decisions of the Eurogroup will be modified in the coming hours.” The Eurogroup is made up of the 17 euro zone finance ministers.
By size, Cyprus’s economy represents not even half a percent of the combined output of the 17 euro zone countries. Yet the impact of this weekend’s decision by European leaders to impose across-the-board losses on bank depositors — from the richest Russian oligarchs, who have increasingly deposited their money in Cyprus’s banks, to the poorest Cypriot pensioners — in return for 10 billion euros, or $13 billion, in bailout money could not be more far-reaching.
After five years of bailouts financed largely by European taxpayers, wealthy European nations have decreed that when a bank or country goes broke, bond investors and perhaps even bank depositors will pay a significant portion of the bill.
The change is driven in no small part by the growing reluctance by residents of nations like Germany — whose chancellor, Angela Merkel, faces an election this year — to continue to finance bailouts of troubled neighbors like Greece, Portugal, Italy, Spain, and now Cyprus. The resulting turmoil could create a wave of investor contagion that will challenge Mario Draghi, the president of the European Central Bank, to make good on his promise to do whatever it takes to protect the euro.
On Sunday, it was clear that a majority of Cyprus’s 56 lawmakers would not approve the terms of the bailout, which would lead to a likely loss of the rescue money that Cyprus so desperately needs.
The government extended a bank holiday it had imposed over the weekend, meaning banks will not open Tuesday as planned. There was talk that they might not open Wednesday, either.
In response, the European Central Bank applied more pressure to have the deal approved, sending two representatives to Cyprus on Saturday night to assure Cypriot banks that the central bank was “here for them — as long as the bill goes through Sunday or Monday morning before financial markets in Europe open,” said Aliki Stylianou, a press officer for the central bank of Cyprus.
Mr. Anastasiades’s cabinet gathered early Sunday with the heads of the central bank and the finance ministry to discuss how to carry out the levy, should it pass.
But some analysts expressed skepticism about the measure’s long-term effects even if Cyprus approves it.
“Whether the Parliament approves the measure or not, the effect will be the same,” said Stelios Platis, the managing director of MAP S.Platis, a financial services firm, and a former economic adviser to Mr. Anastasiades. “As soon as banks in Cyprus reopen, people will rush to take all their money out” because they do not believe it will not happen again.
To some degree, this policy shift was foreshadowed last month when Jeroen Dijsselbloem, the finance minister for the Netherlands who was recently tapped to lead the Eurogroup, forced investors of a failing Dutch bank to pay their share by writing down 1.8 billion euros’ worth of high-risk bonds to zero.
But it is one thing to wipe out bond investors and quite another to force a loss on bank depositors, including Cypriot savers who had their deposits insured and, like people all over the world, had the impression that a government-backed savings account was inviolable.
Liz Alderman reported from Nicosia, Cyprus, and Landon Thomas Jr. from London.
Article source: http://www.nytimes.com/2013/03/18/business/global/facing-bailout-tax-cypriots-rush-to-get-their-money-out-of-banks.html?partner=rss&emc=rss
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