ATHENS -- Lawmakers in Cyprus are scheduled to hold an emergency vote Monday on whether savers on the Mediterranean island will pay a levy of up to nearly 10% on bank deposits as part of a controversial international bailout plan that has enraged residents and sent financial markets swooning.
[Updated 7:10 a.m. March 18: But Yiannakis Omirou, the speaker of Parliament, later said the vote would be delayed until Tuesday evening to give the government time to amend the deal reached over the weekend, the Associated Press reported.]
Failure to approve the plan could spell massive bank runs and a chaotic government default that would further endanger the fate of Europe’s single currency, the euro, which is caught in a stubborn debt crisis.
Cypriot President Nicos Anastasiades, a conservative elected just three weeks ago, said in a nationally televised address Sunday that the deposit tax was the only alternative to a disorderly bankruptcy. The unprecedented scheme, part of a $13-billion bailout package hammered out by European officials over the weekend, would subject account holders with more than $130,000 to a 9.9% tax and those with less to a 6.75% levy.
Anastasiades acknowledged that the plan was painful, but said it would “eventually stabilize the economy and lead it to recovery.”
He vowed to try to modify some elements of the plan to protect small savers. The Reuters news agency reported Monday that officials were hoping to cut the tax to 3% for deposits under $130,000 and increase the rate to 12.5% for larger deposits.
“I completely share the unpleasant sentiment that this difficult and onerous decision has caused,” Anastasiades said. “That’s why I continue to give battle so that the decisions of the Eurozone are amended in the next hours to limit the effect on small depositors.”
The tax would be the first time in the euro debt crisis that individuals’ private savings would be tapped to help keep the government afloat. Critics say it would set a dangerous precedent that could encourage investors to pull money out of bigger but also economically ailing countries such as Italy and Spain.
European officials say that a large portion of the cash in Cyprus banks belongs to Russian oligarchs. They also suspect that Cypriot banks are being used for money laundering.
In Moscow, Russian President Vladimir Putin criticized the plan, with his spokesman calling it "unjust, unprofessional and dangerous," according to Russian news agencies.
In Cyprus, residents rushed to banks and cash machines over the weekend to withdraw as much money as possible.
The value of the euro fell against the dollar in early trading Monday. Fears of fallout from the Cyprus plan also stung markets in London, Frankfurt and Paris.