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Eurozone finance ministers meet in Dublin on Friday to finalize Cyprus bailout amid news that the country needs much more money than previously thought.
The meeting will review how Cyprus can raise its contribution to the bailout being put together by the EU and IMF.
The cost of the rescue has risen to 23 billion euros ($30 billion) from 17.5 billion euros, according to Cyprus’ creditors.
Meanwhile, Cyprus has loosened the capital controls it imposed last month.
Eurozone finance ministers meet in Dublin to finalize Cyprus bailout amid news that it needs much more money than first thought
In order to secure 10 billion euros from the EU and IMF, Cyprus will have to find the remaining 13 billion euros, 5.5 billion euros more than previously thought.
The finance minister of Luxembourg, Luc Frieden, said on Friday that Europe and the IMF could not increase their 10 billion euro share of the bailout.
“I believe the policy will be that the volume will remain at 10 billion [euros],” he told a German radio station.
Late on Thursday, a Cypriot government spokesman confirmed that one fundraising option being considered was the sale of some of the country’s gold reserves.
“The Cypriot government put various options forward, including this,” Christos Stylianides told a news conference.
Christos Stylianides blamed the gulf between the original bailout total and the new 23 billion figure on the previous administration and the time it took to negotiate a bailout, delays which pushed the cost of recapitalizing its banks much higher.
He accused former President Dimitris Christofias of failing to “take responsibility, and complete indecisiveness” in promptly negotiating a bailout.
Analysts said the increase in the cost of the bailout meant Cyprus faced huge new challenges.
Jonathan Loynes, chief European economist at Capital Economics, said that the “biggest burden of the increase in the bailout will fall on depositors and bank bond-holders, whose combined contribution will rise from an expected 5.8 billion euros to 10.6 billion euros.”
Under bailout terms agreed in March, depositors with more than 100,000 euros in savings will bear part of the cost of the rescue.
The bank sector on which much of the Cypriot economy was dependent is shrinking, and thousands of jobs are being lost.
Laiki Bank is being wound up and its healthy assets transferred to the Bank of Cyprus.
Late on Thursday, Cyprus relaxed restrictions that were imposed last month on access to accounts in order to head off a run on banks.
The capital controls, the first that any eurozone country has applied, were put in place when banks reopened on March 28 after they were closed until a bailout agreement.
A new decree, which will remain in place for seven days, lifts all restrictions on transactions under 300,000 euros, a move aimed at helping cash-starved domestic businesses which had difficulty paying suppliers and employees.
Also, the daily limit on transactions outside of Cyprus not requiring prior approval is raised from 5,000 to 20,000 euros.
However, the daily cash withdrawal limit of 300 euros stays in place.
Meanwhile, eurozone officials at the meeting are also due to review Slovenia’s growing problems.
There will be no discussion at the meeting of finance ministers, and the country will not make an application for bailout funds.
But Slovenia’s finance minister, Uros Cufer, is expected to present to EU and European Central Bank officials his plan to shore up the country’s finances.
Slovenia, which adopted the euro single currency in 2007, has been forced to recapitalize its main banks and the economy is struggling.
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The Central Bank of Cyprus has decided to ease some of the restrictions imposed as the country’s banks reopened, following the bailout deal.
Debit and credit cards can be used normally for domestic payments.
Cyprus’ central bank said it would review the curbs on a daily basis and try to “refine or relax” them when possible.
A 5,000-euro monthly limit per person remains in place for card purchases abroad, to stop the flight of capital from the country.
The Central Bank of Cyprus has decided to ease some of the restrictions imposed as the country’s banks reopened
The central bank said in a statement on Friday: “Each day, we will measure and look to refine or relax these controls with the overriding goal of safeguarding and stabilizing the Cypriot financial system.”
The move appears to be an attempt to make life as easy as possible for the domestic economy, while preventing the outflow of funds from the island, correspondents say.
Cyprus needs to raise 5.8 billion euros ($7.4 billion) to qualify for the bailout, and has become the first eurozone member country to bring in capital controls to prevent a torrent of money leaving the island and credit institutions collapsing.
As well as a daily withdrawal limit of 300 euros, Cypriots may not cash cheques and those leaving the country will only be allowed to take 1,000 euros with them.
Depositors with more than 100,000 euros will see some of their savings exchanged for bank shares.
Foreign Minister Ioannis Kasoulides said on Thursday that such controls could gradually be lifted over the course of the month. But many economists predict the controls could be in place for much longer.
Earlier on Friday, President Nicos Anastasiade said Cyprus had “averted the risk of bankruptcy” following the 10bn-euro bailout deal with the EU and IMF.
“The situation, despite the tragedy of it all, is contained,” the president said.
He accused other members of the eurozone of making “unprecedented demands that forced Cyprus to become an experiment”.
Also on Friday, Greek media published a list of Cypriot politicians who allegedly had loans written off by banks at the heart of the island’s financial crisis.
The Bank of Cyprus, Laiki and Hellenic Bank apparently forgave loans of millions of euros to companies, local authorities, and politicians from some of the island’s biggest parties.
The list has been handed to the ethics committee of the Cypriot parliament and an investigation is said to be under way.
Banks opened on Thursday for the first time in nearly two weeks amid severe new rules imposed as part of the bailout deal.
Queues formed of people trying to access their money, but the mood was generally calm.
By Friday, banks had returned to their normal working hours and there were no longer reports of big queues.
The Cypriot banks offered depositors really good rates of interest – as high as 4.75% for long-term accounts – which attracted not only local people, but also hordes of foreigners.
How could the banks afford to pay such great rates? By investing the money from those “savers” in something that itself paid really great rates of interest: Greek government bonds.
When Greece got bailed out, the value of the bonds was cut in half.
But that wasn’t all. The fat interest rate that those bonds were paying was also cut – to just 3.5%.
The Cypriot banks offered depositors really good rates of interest which attracted not only local people, but also hordes of foreigners
That meant Cyprus’ banks had a lot less money coming in the door. But they still had to pay their depositors – and in some cases they’re paying depositors more than they’re getting from the bonds.
In other words, the Cypriot banks are deep in debt, and they’re not making enough money to make their interest payments. They’re on the verge of going bust.
For help, the banks turned first to their European neighbors, who agreed to lend them some cash. They’ve now got more money coming in the door, but it’s not enough. Now they need to attack the problem at the other end, by reducing the amount they owe.
Who do they owe money to? The depositors.
Now, some of those depositors are protected – accounts under 100,000 euros are insured.
Cyprus is taking a big chunk of the money in those accounts – around 40%.
The 40% “tax” on those big accounts does two things. First, it brings money into the door of the banks, giving them more money to operate with. Second, it reduces the amount of interest they have to pay to those account holders each month.
Cyprus banks have reopened after a two-week closure sparked by the EU-IMF bailout negotiations, amid tension over possible large scale withdrawals.
Branches were replenished with cash overnight and police and private security guards deployed amid fears of a run on the banks by customers.
Banks customers face strict controls on the amount they can withdraw each day.
The restrictions on the free movement of capital represent a profound breach of an EU principle.
Cyprus banks have reopened after a two-week closure sparked by the EU-IMF bailout negotiations, amid tension over possible large scale withdrawals
However, the European Commission on Thursday justified the move, saying the “stability of financial markets and the banking system in Cyprus constitutes a matter of overriding public interest”.
Cyprus is the first eurozone member country to bring in capital controls.
Cyprus needs to raise 5.8 billion euros to qualify for a 10 billion-euro bailout from the EU, ECB and the IMF, the so-called troika.
As part of the bailout plan, depositors with more than 100,000 euros in Cypriot banks will see their savings taxed in exchange for bank shares.
An earlier plan to tax small depositors was vetoed by the Cypriot parliament last week.
Branches began to open at noon local time and will close at 18:00.
Some armed police have been deployed and hundreds of staff from the private security firm G4S are guarding bank branches and helping to transport money.
The stock exchange, shut since March 16, remains closed on Thursday and will not reopen until after Catholic Easter.
In a statement issued on Wednesday, the ministry of finance insisted the capital control measures were temporary and were needed to “safeguard the stability of the system”.
It read: “The Central Bank of Cyprus and the government of Cyprus will review them each day, with a view to progressive lifting of the measures as soon as circumstances allow.”
The severe new rules have been imposed to prevent a torrent of money leaving the island and credit institutions collapsing.
As well as the daily withdrawal limit, Cypriots may not cash cheques.
Payments and/or transfers outside Cyprus via debit and or credit cards are allowed up to 5,000 euros per person per month.
Transactions of 5,000-200,000 euros will be reviewed by a specially established committee, with applications for those over 200,000 euros needing individual approval.
Travellers leaving the country will only be allowed to take 1,000 euros with them.
On Wednesday night, hundreds of protesters rallied outside the presidential palace, chanting: “I’ll pay nothing; I owe nothing,” the Reuters news agency reported.
Many economists predict the controls could be in place for months.
The unprecedented restrictions represent a profound breach of an important principle of the EU that capital, as well as people and trade, should able be to move freely across internal borders.
However, the European Commission said member states could introduce capital controls “in certain circumstances and under strict conditions on grounds of public policy or public security”.
But it added that “the free movement of capital should be reinstated as soon as possible”.
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Cyprus banks are to reopen on Thursday at 12:00 p.m. local time, two weeks after they closed to prevent a bank run as a controversial bailout was negotiated.
Banks will open their doors between 12:00 and 18:00 local time, the Cypriot central bank said.
Customers will also be limited to withdrawing 300 euros ($383) a day, to prevent everyone fleeing with their savings.
“I am telling you that all banks are definitely going to open tomorrow,” the Cypriot central bank’s Aliki Stylianou said, which comes after several false announcements of when bank customers will be able to access their funds.
Capital controls are to be imposed as Cyprus seeks to raise 5.8 billion euros to qualify for a 10 billion-euro bailout from the EU, ECB and the IMF, the so-called troika.
Cyprus banks are to reopen on Thursday at noon, two weeks after they closed to prevent a bank run as a controversial bailout was negotiated
Cyprus Finance Minister Michalis Sarris announced a long-awaited series of capital controls, including the 300-euro daily withdrawal, and no cheques can be cashed.
Michalis Sarris cited the “lack of substantial liquidity and significant risk of deposits outflow, with possible outcome the collapse of the credit institutions” as the reasons for the restrictions.
Depositors in Cypriot banks with more than 100,000 euros could see 40% of their funds converted into bank shares, while those with less than 100,000 euros will not lose any funds – but face limits on what funds they can access.
Speaking to the Financial Times, Michalis Sarris said that the controls would be reviewed after seven days, and that some banks could be exempted altogether.
Other controls will prohibit people from taking more than 1,000 euros in cash outside the island, with customs officers authorized to make checks at border crossings.
Money transfers outside Cyprus are prohibited, with a few very specific exceptions, and there is a limit of 5,000 euros a month in credit or debit card purchases while abroad.
The new measures mean that Cyprus is the first eurozone nation to impose capital controls – the absence of which is a fundamental reason behind the monetary union of the 17 members of the euro bloc – since the debt crisis began.
Concern about the ongoing situation in Cyprus has continued to weigh on the Athens stock market, with Greek shares ending down 4% on Wednesday.
Bank of Cyprus chief executive Yiannis Kypri confirmed he had been removed as head of the bank, which is the country’s largest commercial lender.
Reuters reported that Yiannis Kypri had issued a statement about his removal, which said: “The reason I was given was that, based on the resolution decree recently passed by parliament, and upon demands of the troika, an administrator had been appointed at the Bank.
“Until now I have not received a formal letter from the governor of the Central Bank on the matter.”
A European Commission spokesman denied that the troika had demanded Yiannis Kypri’s removal.
“These reports are not correct and decisions like this would in any case be the responsibility of the Bank of Cyprus,” he said.
An administrator has been appointed to Bank of Cyprus to restructure the bank. It is being merged with the “good” parts of the failed Laiki Bank, which will be closed down.
Bank of Cyprus chairman Andreas Artemis handed in his resignation on Tuesday, along with four other directors, but the bank’s board rejected the resignations.
Now Panicos Demetriades, the central bank governor, has sacked the entire board, according to the Cyprus News Agency.
Panicos Demetriades was widely criticized on Tuesday for suggesting that Bank of Cyprus was going to be wound up in the same way as is planned for Laiki Bank.
His comments led to demonstrations, calls for his resignation from Bank of Cyprus staff, and a hastily-drafted denial from Finance Minister Michalis Sarris.
Panicos Demetriades said “superhuman” efforts were being made to get the banks ready for reopening on Thursday.
“Indications are that banks will open tomorrow with some restrictions on capital,” said central bank spokeswoman Aliki Sylianou, speaking to the country’s state broadcaster on Wednesday.
The banks have been shut since March 15 while the controversial 10 billion-euro bailout was being negotiated.
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All Cyprus banks will remain closed until Thursday, March 28, the central bank has announced.
Temporary measures will be placed on transactions when they reopen despite an EU/IMF bailout deal.
Earlier, the Cypriot authorities said all but the biggest two, Bank of Cyprus and Laiki Bank, would open on Tuesday, March 26.
The central bank now says all will remain closed to ensure the whole banking system functions “smoothly”.
The bailout deal will see larger depositors in the two biggest banks, Bank of Cyprus and Laiki, lose money.
All Cyprus banks will remain closed until Thursday, March 28, the central bank has announced
President Nicos Anastasiades said “very temporary restrictions” would be put on capital flows, but gave no details.
Controls to prevent money leaving the country are already in place.
Certain limits on the size of cash withdrawals are expected to continue.
Banks have not been open since March 15. Their reopening had been expected after Cyprus agreed a deal with the IMF and the EU that releases 10 billion euros in support.
It was conditional on Cyprus itself raising 5.8 billion euros, most of which looks likely to come from depositors with more than 100,000 euros in Bank of Cyprus and Laiki or Popular Bank.
The banks remained closed after the country’s first money-raising solution, which would have hit smaller deposit holders as well as larger holdings, was rejected by parliament.
The new deal for Cyprus, unlike previous agreements, does not require parliamentary approval. It will also include austerity measures and tax increases.
Laiki will be shut down, and deposits under 100,000 euros, which are guaranteed by the state under EU law, will move into the Bank of Cyprus to create a “good bank”.
Deposits above that insured amount will be frozen and used to pay Laiki’s debts and recapitalize the Bank of Cyprus, with depositor losses eventually converted into shares.
Major depositors, many of whom are wealthy Russians, will not be able to access accounts exceeding the 100,000-euro limit until the restructuring of the banks is complete.
A government spokesman said the losses on uninsured depositors would be “under or around 30%”.
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Cyprus banks are to reopen on Tuesday, March 26, although the two at the centre of the crisis, Bank of Cyprus and Laiki, will remain shut until Thursday, March 28.
President Nicos Anastasiades has said temporary limits will be placed on financial transactions after a bailout deal imposing a tax on bank deposits.
He said “very temporary restrictions” would be put on capital flows, but gave no details.
Controls to prevent money leaving the country are already in place.
Certain limits on the size of cash withdrawals are expected to continue.
Cyprus banks are to reopen on March 26, although Bank of Cyprus and Laiki will remain shut until March 28
The banks’ reopening came after Cyprus agreed a deal with the IMF and the EU that releases 10 billion euros in support.
It was conditional on Cyprus itself raising billions of euros, which it will do by way of a tax on deposits of more than 100,000 euros.
The banks shut a week ago after the country’s first money-raising solution, which would have hit smaller deposit holders as well as larger holdings, was rejected.
On Monday morning, hopes that the deal would solve the crisis lifted shares.
But later, stock markets were rocked after Jeroen Dijsselbloem, head of the Eurogroup of eurozone finance ministers, suggested that the deal for Cyprus model could form a template in any future bailout.
Jeroen Dijsselbloem, the Dutch finance minister who as head of the Eurogroup played a key role in the Cyprus negotiations, said the deal represented a new template for resolving future eurozone banking problems.
“If there is a risk in a bank our first question should be <<OK, what are you in the bank going to do about that?>>,” he told Reuters and the Financial Times.
Jeroen Dijsselbloem later added a clarification, saying that Cyprus was “a specific case with exceptional challenges”.
He said the pattern for bank rescues should see shareholders take the first hit, then bondholders, who lend money through financial markets, and only then should depositors with large bank balances be tapped.
The Cyprus deal puts the burden for dealing with problem banks on their shareholders and creditors – in this particular case, customers with large bank balances – rather than the government and taxpayers, or bondholders, who lend through financial markets.
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Germany and EU leading bankers have urged the Cypriot parliament to quickly find a way of raising the 5.8 billion euros needed to qualify for an international bailout.
German Chancellor Angela Merkel warned Cyprus not to “exhaust the patience of its eurozone partners”, reports say.
The head of one of Cyprus’ biggest banks urged MPs to accept a levy on bank deposits.
This was rejected on Tuesday, sparking a fresh eurozone confidence crisis.
A much-delayed emergency session of parliament is due to vote on a new package of measures to raise the 5.8 billion euros ($7.5 billion) needed to qualify for the 10 billion-euro bailout.
Averof Neophytou, deputy leader of the governing Democratic Rally party, said political leaders were nearing a compromise and a breakthrough was possible on Friday.
Government spokesman Christos Stylianides said the authorities were engaged in “hard negotiations with the troika”, referring to the EU, the European Central Bank and the IMF, the AFP news agency reports.
Banks have been closed since Monday and many businesses are only taking payment in cash.
The details of the latest proposals are not clear and our correspondent says the eurozone will want to examine the figures carefully.
Cypriot Finance Minister Michael Sarris has returned from Moscow, where he failed to garner Russian support for alternative funding methods.
He said a levy “of some sorts” remains “on the table” despite widespread fury among both ordinary savers and large-scale foreign investors, many of them Russian.
One suggestion was to use pension funds to rescue Cyprus’ banking system – an idea condemned by Angela Merkel.
One of Angela Merkel’s allies in parliament, Volker Kauder, said this was “playing with fire”.
He said it couldn’t happen because it would hurt what he described as “the pensioners, the small people”.
German Chancellor Angela Merkel warned Cyprus not to exhaust the patience of its eurozone partners
Correspondents say Germany is saying that Cyprus cannot expect any more help from Berlin, or Brussels, than what has already been offered.
The European Central Bank has given Cyprus until Monday to find a solution, or it says it will stop transferring money to the troubled Cypriot banks.
Some help has been forthcoming, with the announcement that Greece’s Piraeus Bank would take over the local units of Cypriot banks. This would safeguard all the deposits of Greek citizens in Cypriot banks.
Earlier, Christos Stylianides urged the country’s MPs to “take the big decisions” to prevent a financial meltdown.
“We must all assume our share of the responsibility,” he said in a televised statement.
Leading Cypriot bankers have urged parliament to accept a levy on bank deposits, as originally proposed under the bailout, but with smaller depositors exempted.
The plan overwhelmingly rejected on Tuesday said small savers would pay a 6.75% levy, while larger investors would pay 9.9%.
Bank of Cyprus chairman Andreas Artemis said: “It should be understood by everyone… especially from the 56 members of parliament… there should not be any further delay in the adoption of the eurogroup proposal to impose a levy on deposits more than 100,000 [euros] to save our banking system.”
If ordinary savers are exempt, then larger investors, many of them Russian, would have to pay an even higher rate, if a levy does remain part of the scheme.
The government fears this would prompt foreign investors to withdraw their money, destroying one of the island’s biggest industries.
With no end in sight to the crisis, businesses in Cyprus have been insisting on payment in cash, rejecting card and cheque transactions.
“We have pressure from our suppliers who want only cash,” Demos Strouthos, manager of a restaurant in central Nicosia, told AFP news agency.
Eurozone partners are saying Cyprus has got to change its banking system, over-reliant on foreign depositors, and the money it needs has to come out of that system, one way or another.
Earlier, talks in Moscow on possible new financial aid from Russia, a key investor in Cyprus, have failed.
Russia’s Finance Minister Anton Siluanov, speaking after talks with his Michael Sarris, said Russian investors were not interested in Cyprus’ offshore gas reserves.
Russia gave Cyprus an emergency loan of 2.5 billion euros in 2011. Anton Siluanov said that no new Russian loan had been on the table with Michael Sarris because of limits imposed by the EU on Cypriot borrowing.
However, Russian PM Dmitry Medvedev later said Moscow had not “closed the door” on possible future assistance.
Cypriot leaders must first reach agreement with their fellow members of the EU, he added.
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The Cypriot political leaders have dropped the unpopular levy on bank deposits in a new bailout plan.
There was outrage over an earlier plan to tax all bank deposits.
Cyprus’ banks, which have been shut all week to prevent mass withdrawals, are to stay closed until next Tuesday, March 26.
Cyprus is required to find 7 billion euros ($9 billion) to get a 10 billion-euro EU-IMF loan. Cypriot officials now propose a state investment fund and special bond issue to raise 5.8 billion euros.
The other 1.2 billion would be raised through privatizations and by increasing capital gains tax and the corporate tax rate.
The European Central Bank (ECB) has warned it may halt emergency funding on Monday if Cyprus fails to come up with a viable rescue plan by then.
Cypriot political leaders have dropped the unpopular levy on bank deposits in a new bailout plan
Cypriots are finding it increasingly difficult to perform everyday financial transactions as cash and credit dries up.
“We didn’t discuss a [deposit] haircut and we are not reverting to it,” Cyprus’ parliament speaker Yiannakis Omirou told reporters, in remarks quoted by Reuters.
Yiannakis Omirou was speaking after an emergency meeting between politicians and President Nicos Anastasiades.
It is not yet clear if the new plan will be ready to be put to a parliamentary vote on Thursday.
The deputy leader of the ruling Democratic Rally party, Averof Neophytou, said party leaders had unanimously agreed to create a “solidarity fund” with state assets, which would be used for an emergency bond issue, Reuters reported.
That plan was confirmed by government spokesman Christos Stylianides.
But one senior government MP, who did not want to be named because he said discussions were not over, said the bank levy would remain in some form. Without it, the MP said, Cyprus could not raise all the money it needed.
The previous proposals had included a levy on deposits between 20,000 and 100,000 euros, which had outraged many Cypriots.
There has been much speculation that the new Cypriot plan could include Russian help, as Russia has multi-billion dollar investments in Cyprus.
Russians, including wealthy tycoons, hold between a third and half of all Cypriot bank deposits.
Russian PM Dmitry Medvedev has poured scorn on the eurozone’s bailout plan for Cyprus, accusing EU leaders of behaving “like a bull in a china shop”.
Dmitry Medvedev told European Commission President Jose Manuel Barroso in Moscow on Thursday that all interested parties, including Russia, should be included in a deal for Cyprus.
The Cypriot Finance Minister Michalis Sarris is in Moscow for a second day to negotiate assistance.
Analysts say Russia may provide more funding in return for interests in Cyprus’ offshore energy fields.
The country’s two biggest banks, Bank of Cyprus and Laiki, are believed to be reliant on the ECB’s Emergency Liquidity Assistance, provided via the Central Bank of Cyprus.
The ECB’s governing council can halt ELA if it believes the banks receiving it are no longer solvent, the Financial Times newspaper reports.
The banking sector dominates Cyprus’ economy and if a viable rescue is not organized soon the island state risks having to abandon the euro.
Cypriot banks were among the bondholders who had to take a big “haircut” in the second massive bailout for Greece.
Since 2008 the eurozone has been badly bruised by the massive bailouts provided for Greece, the Republic of Ireland and Portugal. There is a widespread reluctance to commit more EU taxpayers’ money to ailing banks in southern Europe.
Cyprus is a resilient nation and the banks are still giving out cash through machines – although with limits, and some are running low.
Some businesses are now refusing credit card payments.
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Cyprus officials have announced the country’s banks, which were closed to prevent mass withdrawals, will remain shut until at least Tuesday, March 26th.
The Cypriot government began an emergency meeting this afternoon to discuss alternatives to the EU-IMF bailout deal rejected by parliament on Tuesday.
Reports say the cabinet is considering imposing capital controls when banks are reopened.
Meanwhile, Cyprus’ finance minister is in Moscow to seek help from Russia.
Russia holds multi-billion dollar investments in Cyprus.
Finance Minister Michalis Sarris said after talks with Russian Finance Minister Anton Siluanov: “There were no offers, nothing concrete.”
Talks are expected to continue in Moscow on Thursday.
The banks will remain shut on Thursday and Friday this week and Monday March 25 is a scheduled bank holiday. The stock exchange also remains closed.
Germany has said banks in Cyprus may never reopen if a bailout is not agreed.
Earlier, Cypriot President Nicos Anastasiades met party leaders and the central bank governor in Nicosia to hammer out a Plan B, after a one-off tax on savings failed to get the support of any MPs.
Nicos Anastasiades has also been talking to the European Union, European Central Bank and IMF.
Bank mergers, a bond issue and more Russian funding have all been mentioned as ways to help the country out of the crisis.
The establishment of a “bad bank” which would take on risky assets held by Cypriot banks has also been mentioned by officials.
Cyprus’ banks are still giving out cash through machines – although with limits, and some are running low.
Some businesses are now refusing credit card payments.
Cyprus banks, which were closed to prevent mass withdrawals, will remain shut until at least March 26th
On Wednesday, German Chancellor Angela Merkel said she regretted but respected the Cypriot vote.
Angela Merkel said the eurozone had a duty to find a solution for Cyprus, but added that the country’s current banking system was “not sustainable”.
Cyprus’ banks were left exposed following the debt crisis in Greece and there are fears Cyprus could go bankrupt if they fail.
German Finance Minister Wolfgang Schaeuble warned Cyprus that its banks might never be able to reopen if it rejected the bailout.
The controversial levy had been proposed as the condition for the 10 billion-euro ($13 billion) EU and IMF bailout. Cyprus was expected to raise 5.8 billion euros through the one-off tax on bank savings.
The plan was altered on Tuesday to exempt savers with less than 20,000 euros, but a 6.75% charge on deposits of 20,000-100,000 euros and a 9.9% charge for those above 100,000 euros remained.
However, parliament rejected the deal, with 36 MPs voting against it, 19 abstaining and none in favour.
Protesters outside parliament reacted with joy at the decision.
Cyprus has attracted money through its lower taxes, with Russians holding between a third and half of all Cypriot deposits.
Russian private and corporate deposits are believed to total about $30 billion.
Russian President Vladimir Putin had called the bailout deal “unfair, unprofessional and dangerous”.
Analysts say Russia may provide more funding in return for interests in Cyprus’ offshore energy fields.
One offer of help has come from Cyprus’ Orthodox Church, which is a major shareholder in the third-largest domestic lender, the Hellenic Bank.
Archbishop Chrysostomos I said on Wednesday the Church was willing to mortgage its assets to invest in government bonds.
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Cyprus’ parliament has rejected the controversial levy on bank deposits, proposed as part of an EU-IMF 10 billion-euro ($13 billion) bailout package.
No MPs voted for the bill, with 36 voting against and 19 abstaining.
Cyprus’ finance ministry had modified the package, proposing an exemption for savers with smaller deposits, but opposition had remained fierce.
Thousands of protesters who had filled the streets outside parliament reacted with joy to the news of the vote.
EU finance ministers have warned that Cyprus’ two biggest banks will collapse if the deal does not go through in some form.
However, there has been widespread outrage on the island at the prospect of ordinary savers being forced to pay a levy of 6.75%
The plan was changed to exempt savers with less than 20,000 euros, with those over 100,000 euros charged at 9.9%, but this was not enough to placate critics.
Several MPs during the parliament debate on Tuesday evening denounced the proposed plan as “blackmail”.
President Nicos Anastasiades had urged all parties to back the bailout, saying Cyprus will be bankrupt if the deal does not go ahead.
But he also said earlier on Tuesday that MPs were likely to reject the levy, despite the modifications.
“They feel and they think it’s unjust and that it is against the interests of Cyprus at large. But I have to admit that it was something which was not expected by the troika and by our friends, the Eurogroup.”
The president has called an emergency meeting of political party leaders on Wednesday morning to discuss the way forward.
Cyprus’ parliament has rejected the controversial levy on bank deposits
The president of the Eurogroup of eurozone finance ministers, Dutch Finance Minister Jeroen Dijsselbloem, emphasized on Monday that no other eurozone country would be forced to impose such a levy.
The Cyprus central bank chief, Panicos Demetriades, has warned that scrapping the tax on small savers would scupper the plan to raise 5.8 billion euros in total from bank deposits. He also predicted account holders could suddenly withdraw 10% or more of the total in Cypriot banks if the levy was imposed.
Fearing a run on accounts, Cyprus has shut its banks until at least Thursday. The local stock exchange also remains closed.
Cyprus’ banks were badly exposed to Greece, which has itself been the recipient of two huge bailouts.
Panicos Demetriades said that he favored imposing the levy only on deposits larger than 100,000 euros, with eurozone finance ministers also suggesting such a move.
Instead, they argue that wealthier savers should pay the levy at a higher rate – losing more than 15% of their investments, correspondents say.
However, many of those larger deposits are held by Russians, and Russian leaders have already reacted angrily to the Cypriot levy – on Monday President Vladimir Putin called it “unfair, unprofessional and dangerous”.
Of the estimated 68 billion euros in total held in Cypriot bank accounts about 40% belongs to foreigners – most of them thought to be Russians.
The Cypriot government fears a higher levy on these larger deposits would prompt many large investors to withdraw from the island and would effectively destroy its financial sector.
Russia has also said it may reconsider the terms of a 2.5 billion-euro loan it made to Cyprus in 2011, which was separate from the proposed eurozone bailout.
Cypriot Finance Minister Michalis Sarris arrived in Moscow on Tuesday to see if the repayment on that loan could be delayed until 2020, and whether the interest rate could be reduced.
Officials said he would also be looking for “further investment” in his country, correspondents report, with some speculating this might mean Russian access to Cyprus’ large undeveloped gas deposits.
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Cyprus’ central bank has announced that the nation’s banks will stay closed until Thursday, March 21, as fears mount of a bank run.
Cyprus’ banks were closed for a scheduled Bank Holiday on Monday, something that allowed the country to try to implement a levy on savers’ deposits.
That move triggered unease among depositors in Cyprus, where cash machines soon ran out of funds.
It had earlier unnerved investors, sending shares and the euro lower.
The EU and IMF want all bank customers to pay a levy in return for a bailout worth 10 billion euros ($13 billion).
Spanish and Italian markets were down 2%, with bank shares the hardest hit.
The euro lost 1% against both the pound and the dollar, leaving it at 85.6p and $1.295 respectively.
Cyprus’ central bank has announced that the nation’s banks will stay closed until Thursday, March 21, as fears mount of a bank run
Earlier, Japan’s Nikkei 225 index fell 2.7%, while Hong Kong’s Hang Seng and Australia’s ASX 200 dipped 2%.Many major banks in Italy, France and Spain, some of the eurozone’s most indebted countries, were down between 4% and 5%.
In France, Credit Agricole and Societe Generale were the worst affected, losing about 4.5%, while Spain’s BBVA lost a similar amount.
In Germany, Deutsche Bank was down 3%, while Commerzbank was 1.3% lower.
Some investors think the Cyprus plan could prompt depositors elsewhere, particularly in Greece, Portugal, Ireland, Italy, Greece and Spain, to withdraw their funds
However, the European Central Bank board member, Joerg Asmussen, said he did not think Cyprus’ problems would spread to other eurozone countries: “I do believe that the situation of Cyprus and the Cypriot banking sector is indeed unique.”
Finance ministers from eurozone have agreed a 10 billion-euro ($13 billion) bailout package for Cyprus to save the country from bankruptcy.
The deal was reached after talks in Brussels between the ministers and the International Monetary Fund (IMF).
In return, Cyprus is being asked to trim its deficit, shrink its banking sector and increase taxes.
For the first time in a eurozone bailout, bank depositors are facing a levy on their savings.
Cyprus’ banks were badly exposed to Greece, which has itself been the recipient of two huge bailouts.
“The Eurogroup was able to reach a political agreement with the Cypriot authorities on the cornerstones of this agreement,” Eurogroup head Jeroen Dijsselbloem said after almost 10 hours of the negotiations.
“The assistance is warranted to safeguard financial stability in Cyprus and the eurozone as a whole,” he added.
IMF chief Christine Lagarde, who took part in the talks, said earlier: “We don’t want a Band-Aid. We want something that lasts, that is durable and sustainable.”
The deal also involves a levy on bank deposits intended to ensure investors contribute to the bailout.
Finance ministers from eurozone have agreed a 10 billion-euro bailout package for Cyprus to save the country from bankruptcy
People with less than 100,000 euros in Cypriot bank accounts will have to pay a one-time tax of 6.75%, while those with more will have to pay 9.9%. It is expected to raise 5.8 billion euros in additional revenue.A European Central Bank (ECB) official said the Cypriot authorities had already started to take action to ensure that the levy can be collected. Otherwise, there would be a likelihood of massive withdrawals to avoid it, our correspondent adds.
There has also been speculation that Russia could help finance the bailout by extending a 2.5 billion-euro loan already made to Cyprus. Cypriot Finance Minister Michael Sarris will travel to Moscow for meetings on Monday, reports say.
There are a lot of Russian deposits in the Cypriot banking system, according to economists.
Jacob Funk Kirkegaard, of the US-based Peterson Institute for International Economics, said that was a potential problem for any bailout negotiations.
“There is a general political sentiment that it is not acceptable to be bailing out a country, and thereby putting European taxpayers’ money at risk, to basically protect Russian depositors in Cypriot banks,” he said.
The Cypriot economy accounts for barely 0.2% of the eurozone’s overall output. But there is concern within the euro bloc that a default by Cyprus risks undermining the progress being made in Greece.
Cyprus is the fifth country to receive eurozone assistance since the bloc’s financial crisis began to unfold in earnest nearly three years ago.
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