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Cyprus Delays Vote On Savings Raid Bailout

anastasiadis26Cyprus’s Parliament has postponed its decision on whether it will go along with a tax of up to 9.9 percent on the savings of bank account holders as demanded by international lenders in return for a 10 billion euros ($13 billion) bailout to keep the island country’s economy from collapsing.
The vote that was due to take place on March 17 was pushed back to Monday, a holiday in Greece and Cyprus, when banks would be closed in any case. Cyprus’ cooperative banks shut their doors on March 16, a Saturday when they would normally be open after a near-run on the bank when word got out about the raid on savings, a plan to have account holders pay for part of the bailout and the mistakes the banks made. The cooperative banks, which represent about a fifth of the island’s banking sector, remained open only for about an hour. However, people continued to have access to their funds through ATM machines before they ran out of cash.
The Cypriot government was squeezing lawmakers to vote for the plan amid growing opposition. Newly-elected conservative President Nicos Anastasiades, in office only a few weeks. was to host an emergency meeting of party leaders late on March 17 to gain a majority vote and then was to make a nationally-televised appearance hoping to persuade angry Cypriots to accept their losses without resistance.
The Leftist AKEL, Social Democratic EDEK and the Ecologists, as well as the European Party, that had sided with Anastasiades in the campaign, said they would vote against the bill, which would mean there will be not be enough votes for the government’s side. Anastasiades said if the vote fails, the country’s banks would collapse and chaos would ensue.
Nobel laureate Christoforos Pissarides, who heads the newly-formed National Council for the Economy, said there is no other option than taking those measures, otherwise the country’s credit system would crumble leading the country to chaos.  “This may be a painful solution but it is the only hope we have to save the economy of Cyprus,” he told Cyprus News Agency on Sunday.
The government has declared March 19 a bank holiday, a method of keeping the banks closed so that depositors can’t get at their money before the government seizes it to give to the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) which has stepped over the country’s national sovereignty to gain access to the accounts of Cypriots and make them pay. The banks may also be closed now on March 20 and some analysts said that it could spread panic among depositors in other countries.
Greece is trying to stifle fears that Greeks with money in Cypriot bank branches in Greece could be affected, insisting they won’t be. Hellenic Postbank, an ailing national bank, is reported set to take over the subsidiaries of Cypriot banks in Greece. The Laiki Bank of Cyprus will also absorb some of the Cypriot banks in Greece. Cyprus’s central bank has written to the island’s lenders to ask them to block customer’s transfers and payments, according to reports on the island.
Cypriot website 24h revealed that the Central Bank of Cyprus wrote to Cypriot lenders on March 16 to ask them to stop all form of payments from their accounts, even those that were from one account at the bank to another. Kathimerini reported that the capital controls do not apply to the units of Cypriot banks in Greece. Normal restrictions on cash withdrawals and electronic transfers are in place.
The European Central Bank (ECB) urged swift action, saying delays could trigger a collapse in confidence in the banking system in other European countries and rattle stock markets. According to, since March 15, the lenders have been talking with the governments of Greece and Cyprus to work out a plan for the subsidiaries of the Cypriot banks in Greece to go over to the Fund of Fiscal Stability.
Another compounding problem, it was reported, is that the Cypriot banks in Greece could need as much as 2 billion euros ($2.6 billion) to keep them propped up. Greek authorities estimate there is “hidden cost” in the whole procedure from the possible abundance of clerks. There is also the question whether the Cypriot banks will receive cash for assets or if they receive bonds.
During his campaign, Anastasiades said he would not go along with the scheme, but changed his mind almost as soon as he gained power. He said that said refusing the bailout would have led to the collapse of the island’s two largest banks, who were brought to near-ruination by their large holdings in Greek bonds, which the Greek government devalued by 74 percent to write down its own crushing debt during a crushing economic crisis.
Anastasiades said that his government was presented with a fait accompli in its negotiations with the eurozone, forcing it to accept a one-off tax on depositors as part of its bailout deal. On Tuesday, March 19, when banks were originally set to open, he said that, “We would either choose the catastrophic scenario of disorderly bankruptcy or the scenario of a painful but controlled management of the crisis, which would put a definitive end to the uncertainty and restart our economy.”
Martin Schulz, the head of the European Parliament, said that small depositors in Cyprus should be protected, proposing that there should be no haircut to account whose balance does not exceed 25,000 euros, ($32,700) in an interview to German newspaper Welt am Sonntag. The decision by Eurozone officials provides for all deposits up to 100,000 euros ($130,000) to suffer a 6.75 percent one-off tax, while those over 100,000 to have 9.9 percent deducted in favor of the island’s flagging economy.
The lenders were said to be concerned that the Cypriot banks are being used to shelter and launder money from organized crime, particularly Russian mobsters and wanted to collect from them. That did not explain why small depositors with even a single euro in the bank will be taxed.
Faced with a very strong reaction by the majority of the people as well as local politicians, the Cypriot government has leaked that depositors may also get bonds on future natural gas earnings in return for the loss of their deposits.
On March 16, a man drove his bulldozer to the gate of a cooperative bank in Limassol in protest not being able to withdraw his cash. George Osborne, the UK Chancellor of the Exchequer, promised the members of the British armed forces and government officials based on Cyprus who have accounts in Cypriot banks that they will be compensated from the haircut Nicosia is imposing.

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