The bank levy proposed by eurozone finance ministers last weekend as part of a €10-billion bailout for Cyprus came under heavy fire by political group leaders in the European Parliament.
The special Conference of Presidents was held to debate the outcome of last week's EU summit.
Hannes Swoboda, the Socialists and Democrats (S&D) leader, described the Cyprus bailout situation "unacceptable" and branded the finance ministers’ proposal as "a scandal".
As part of the €10-billion package for Cyprus, finance ministers proposed a one-off tax on bank deposits. The deal was rejected by the Cypriot Parliament on Tuesday (19 March), leaving Cyprus on the brink of financial meltdown.
Critics have expressed concerns about the tax, which proposed to introduce 9.9% levies on deposits exceeding €100,000 while lower deposits would be taxed 6.7%.
The failed bailout plan would have allowed for European governments to directly intervene in personal Cypriot holdings, an unprecedented tax intrusion in recent banking history.
MEPs voiced strong disapproval about the proposed bank levies, which were expected to hit small savers instead of the large depositors, banks and shareholders it initially sought to target.
“Cyprus is our failure of the euro-policy," said Guy Verhofstadt, leader of the Alliance of Liberals and Democrats for Europe (ALDE). "If we ask for €5 billion, we need to protect depositors, not the banks and shareholders.”
Verhofstadt asked Van Rompuy and Šefčovič: “What happened last Saturday?”
“A banking union must protect the bank customers, especially the ordinary depositors rather than the bond holder and creditors. It is totally incomprehensible and undermines the credibility and legitimacy of the EU and its new financial structures to restore stability,” Verhofstadt said.
Had the bailout deal been accepted by the Cypriot Parliament, it would have hit ordinary bank customers rather than taxing large investors with funds exceeding €100,000.
Among the alternatives for the island is an EU bailout with IMF support and possible assistance from Russia, whose wealthiest citizens have used Cyprus as a financial safe heaven.
Cypriot Finance Minister Michael Sarris extended a stay in Moscow, where Russian officials said he asked for a further €5 billion on top of a five-year extension and lower interest on an existing €2.5 billion loan from Russia.
Speakers at the parliamentary meeting also expressed their opinions about Russian involvement in the Cypriot bailout, citing the need for a united European voice.
“With regards to EU-Russian relations, we must act coherently. The more we speak with one voice the more serious we are,” said Von Rompuy.
Swoboda, meanwhile, warned about the dangers of involving Russia as part of a bailout solution without searching for alternatives.
“Russia should not be seen as the great saviour, we have other alternatives like the financial transaction tax and mortgage tax, all of which could help towards the bailout,” he said.