Last weekend, eurozone creditors demanded a tax be imposed on bank accounts — 6.75 per cent on all insured investments of less than $135,000 and a 9.9 per cent levy on everything above that threshold — in exchange for a $13-billion bailout package. The tax would have raised $7.6 billion for Cyprus.
Cypriot legislators in the capital Nicosia voted 36 against the proposal and 19 abstentions. There was one absence.
President Nicos Anastasiades pleaded for angry Cypriots to accept the deal, but earlier on Tuesday told reporters he expected parliament to reject it because they felt it was “unfair.”
Cyprus has an abnormally large banking system for a country of its size. Only one million people live there, but it has become a known tax haven for Russian, European and Arab investors. Russian investors have $31 billion in deposits in Cyprus.
Government leaders must develop another deal with the European Central Bank, the International Monetary Fund and the European Union as soon as possible to avoid a collapse of Cyprus’s banking system, said Martin Schwerdtfeger, an international economist at TD.
“Now they must see if there is a deal to be negotiated and how fast it can be done,” Schwerdtfeger said from Toronto. “The situation will now become very complex.”
Cyprus imposed a banking holiday from Monday to Wednesday in order to stop investors from withdrawing all of their funds from the banks, and it is expected to extend it.
“If not, there will be a run on the bank and everyone will withdraw,” Schwerdtfeger added.
Bailout packages for Greece, Spain and Portugal have strained EU finances and each country has accepted painful austerity measures. Cyprus is the fifth nation in the 17-member eurozone to plead for assistance.
The Cypriot rejection of bailout terms is expected to further deepen the current euro debt crisis. The EU has struggled since the global financial meltdown of 2008.
Original Article
Source: thestar.com
Author: Tanya Talaga
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