Cyprus vote throws new uncertainty on bailout

Nicos Anastasiades and Angela Merkel [Council]

A €10-billion aid deal to save Cyprus from bankruptcy has been thrown into fresh uncertainty with news that the country's fractious parliament will vote on the final package.

 

 

 

The surprise vote was agreed earlier this week, and early signs are that nearly half the members of the 56-seat parliament may oppose the bailout, seen as vital to keep Cyprus in the eurozone.

The tiny opposition Greens Party said on Wednesday its sole parliamentarian would vote to reject the deal, becoming the first party to announce its intentions.

However, the Communist AKEL and Socialist EDEK parties, which together have 24 seats, have been vocal in their opposition to the bailout, and are seen as likely to vote against, although there is some chance they may abstain instead.

"We've fought for freedom, we've fought to maintain the Cypriot Republic," lawmaker George Perdikis said in statement.

"It is, in my opinion, a crime and wrong to deliver Cyprus into the hands of the troika and allow it to become a colony," he said, referring to the country's European Union, European Central Bank and International Monetary Fund lenders.

The parliament shocked Europe by voting unanimously in March against an initial bailout plan which featured controversial demands that bank depositors including small savers should have funds seized to pay towards the cost.

Big depositors’ losses

The final version of the bailout agreed with the European Union and International Monetary Fund, forced massive losses on big depositors in the island's two major commercial banks, triggering economic turmoil likely to sink the country deeper into recession.

The deal, which still requires ratification by parliaments in some EU states, must also be put to Cyprus's parliament for a vote – a previously unscheduled plan – according to the attorney general, Petros Clerides.

In a statement late on Tuesday, Clerides cited a constitutional requirement for a vote on the bailout deal after it is formally submitted to the assembly by President Nicos Anastasiades. Opposition members had called for a vote, saying the assembly could not be ignored on such an important issue.

"Whoever is prepared to vote against the loan agreement should at the same time propose where this €10 billion will be found," government spokesman Christos Stylianides told state radio.

"They should also propose how we would deal with issues such as paying wages and pensions, and how we would deal with the international uproar caused by a possible rejection of the loan agreement," he said.

The bailout agreement was expected to be put to the assembly at the end of the month, once it has been approved by the cabinet, parliament's acting permanent secretary, Socrates Socratous, told Reuters on Wednesday.

Eurozone finance ministers last week approved €10 billion in aid. In return Cyprus must come up with a further €13 billion, bringing gross financing needs for the island to €23 billion.

Background

The Cypriot banking sector got into trouble mainly because it lost €4 billion, or 22% of Cypriot GDP, on the restructuring of Greek sovereign debt last year, which itself was a condition for a second emergency loan package from the eurozone to Greece.

Under the bailout deal, Cyprus Popular Bank will be closed and its guaranteed deposits of up to €100,000 transferred to the biggest bank, Bank of Cyprus.

Deposits of more than €100,000 at both banks, too big to enjoy a state guarantee, will be frozen, and some of those funds will be exchanged for shares issued by the banks to recapitalise them.

The big depositors will lose money, but the authorities say deposits up to €100,000 will be protected, a reversal from an earlier plan that would have hit small depositors as well but was vetoed by Cyprus's parliament earlier in March.

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