Cyprus parliamentary vote on rejecting the bank deposits levy, gives a new political, diplomatic and financial dimension to the euro crisis, as democracy counts more than money and numbers. Brussels and Berlin have already feared that crisis could spread as a direct consequence of their last weekend’s blackmail decision against Cyprus, and Nicosia from its part has an historic opportunity to creatively re-consider its geopolitical relations with Russia:
Cyprus lawmakers reject bank tax; bailout in disarray – Reuters
Cyprus overwhelmingly rejected a proposed levy on bank deposits as a condition for a European bailout on Tuesday, throwing international efforts to rescue the latest casualty of the euro zone debt crisis into disarray. The vote in the tiny legislature was a stunning setback for the 17-nation currency bloc, angering European partners and raising fears the crisis could spread; lawmakers in Greece, Portugal, Ireland, Spain and Italy have all accepted austerity measures over the last three years to secure European aid. With hundreds of demonstrators outside the parliament chanting “They’re drinking our blood”, the ruling party abstained and 36 other lawmakers voted unanimously to reject the bill, bringing the Mediterranean island, one of the smallest European states, to the brink of financial meltdown. Finance Minister Michael Sarris had already headed to Moscow, amid speculation Russia could offer assistance given the high level of Russian deposits in Cypriot banks. President Nicos Anastasiades, barely a month in office, spoke by phone with Russian President Vladimir Putin after the vote. Anastasiades was due to meet party leaders at 9 a.m. (0700 GMT) on Wednesday to explore a way forward.
More importantly the voting process proves that Cypriots are united and have to move fast for utilizing alternative ways in their effort to save their banking sector:
Defiant lawmakers in Cyprus rejected a bill on Tuesday March 19th that would impose a universal levy on bank deposits, calling it a shameless attempt to “blackmail” a small island. The levy had been agreed to last week with the euro-zone group negotiating a bail-out for Cyprus. The governing Democratic Rally party, which proposed it, chose to abstain. The other five parties in parliament voted against. The levy was supposed to raise €5.8 billion ($7.5 billion) on top of a €10 billion bail-out by the European Union and International Monetary Fund, to spare criticism that once again north European taxpayers were footing the bill for Mediterranean idlers. Nicos Anastasiades, the Cypriot president, said he would quickly draw up a plan B. Mr Anastasiades has to move fast. Cypriot banks have already been closed for three working days, though cash machines are being regularly refilled. When the banks re-open a run is possible. Locals will transfer their savings to safe deposit boxes and mattresses. Owners of foreign companies based on Cyprus because of its low tax rate and lax application of anti-money laundering rules will move funds to a more stable jurisdiction. Plan B, say government advisers, would require state pension funds to hand over about €4 billion of their reserves. Cyprus would ask Russia for the other €2 billion, arguing that Russian companies, with an estimated €25 billion stashed in Cyprus, would then no longer face the prospect of losing 10-12% of their deposits. Michalis Sarris, the finance minister, flew to Moscow as soon it became clear the bill would not be approved. His first task will be to seek an extension, and perhaps an interest-rate cut, for Cyprus’s current €2.5 billion loan.
On the other hand, it is too early to speak about Cyprus out of the Euro Zone:
Uncertainty about Cyprus set markets on edge, but they are far from pricing in the tiny country’s exit from the euro. A barrage of headlines and rumors about what’s going on in Cyprus sent the euro to a four month low and sparked selling in commodities and stocks. Investors alsodumped European stocks and peripheral bonds and moved into the safety of U.S. Treasurys and German bunds. The Cypriot parliament, in a closely watched vote, rejected a controversial planTuesday evening that would have taxed bank deposits as part of a 10 billion euro bailout plan. The country’s central bank warned that that the uncertainty and the plan could cause a run on banks if confidence was not restored. The banks were to be closed until Thursday.
Cyprus has to develop multiple creative diplomatic approaches on its relations with Russia with a given point of emphasis on the banking sector and energy:
Germany might be telling the world not to blame it for Cyprus’ bailout plan, but one analyst told CNBC that Russia could avenge the loss of billions of dollars it has invested and deposited on the island by cutting Germany’s energy supply. As the Cypriot parliament prepares to vote on a controversial and unprecedented proposal to levy a tax on bank accounts held on the island, the deal has been described as a covert move by Germany and its euro zone partners to tackle what they perceive as Russian money laundering in Cyprus. Twenty percent of total deposits of the Cypriot banking system are held by Russians and many Russian businesses are registered in Cyprus, making any plan to levy a 15.6 percent tax on deposits over 100,000 a moot point for Russia. The country has also given Cyprus a $3.3 billion loan that Cyprus wishes to extend.
Finally, international financial markets, many governments and analysts all over the world believe that last Friday the Eurogroup by a strong German influence took a “terrible decision” by attempting a direct blackmail against Cyprus…
The bailout plan to tax Cyprus bank savers is a “terrible decision” and one fueled by what’s good for Germany, Arianna Huffington told CNBC Tuesday. ”To basically go after insured deposits, to me, that’s the worst of the whole deal,” the Huffington Post co-founder and editor-in-chief said in a “Squawk Box” interview, in which she also spoke about the importance of corporate wellness.But putting things in perspective, she continued, “my favorite piece of data is Cyprus’s GDP, $25 billion, is half of Apple‘s quarterly earnings.”