* EU vultures ready to grab Russian deposits, as parliament rejects deposit tax for bailout *
Members of parliament rejected a deeply unpopular tax on bank deposits on Tuesday, throwing into doubt a 10 bln euro bailout needed to avert default and a banking collapse.
The 56-seat parliament voted by 36 votes against and 19 abstentions from the ruling Democratic Rally to bury the bill, a condition of a 10 bln euro bailout.
Finance Minister Michael Sarris is already in Moscow to calm jittery nerves over the Eurogroup’s “bail in” plans that will hurt Russian depositors, while he will also explore the prospects of finding investors to rescue the nationalised Popular Laiki Bank.
Finance Ministry Director General Andreas Charalambous confirmed Sarris’ plans, but also added that in eth case of a failure to pass the bank levy bill through parliament, abandoning the single European currency and returning to the Cyprus Pound was not a serious option.
Meanwhile, press reports suggest that Russian depositors have already been moving their savings out of the island, with some headed to Malta, Luxembourg, Germany, the Channel Islands and Latvia.
Charalambous said that these were knee-jerk measures, as the proposed increase in the Cyprus corporate tax rate to 12.5%, from the basic 10%, would still be attractive for international businesses in Cyprus.
Even London Mayor Boris Johnson joined the “vultures” hoping to grab a piece of the action, with reports saying that on welcoming Russian money from Cyprus, he said: “We're rolling out the red carpet in a pretty promiscuous way.”
Some analysts believe there could be a sort of contagion, if countries like Greece run out of options to close budget gaps. Cyprus does not have anywhere else to turn for the money, which is the primary reason it took such measures.
Already, some Arab banks operating in Cyprus are threatening to abandon the island if the government goes ahead with the proposal to impose taxes on depositors, the World Union of Arab Bankers warned on Monday.
“This measure could destroy Cyprus as a financial hub in the region,” it said in a statement, noting that Cyprus was risking the credibility that has helped attract dozens of Arab and foreign banks as well as hundreds of thousands of depositors from all over the world.
“It is unfair to burden the Arab banks with the cost of increasing the capital of the troubled Cypriot banks. The customers of these banks should not pay the price of this decision,” it explained.
President Anastasiades used social media to try and drum up support for his plans.
“I totally share the unpleasant feelings that such as difficult and painful decision is causing. Which is why I will continue to fight to improve on the Eurogroup’s decisions,” he said on his facebook and Twitter accounts.
Meanwhile, the Pension Fund of the state Electricity Authority said it would renew a 13-week T-bill worth 100 mln euros that matures on March 21 and said it would maintain its funds with local banks and Coops.
IMF BACKS BID
Meanwhile, IMF Managing Director Christine Lagarde said on Tuesday that the Fund supports the Cypriot government's efforts to ease the pain for smaller depositors under a levy that is part of an international bailout for the island,.
"We are also obviously extremely supportive of the Cypriot authorities' intentions to introduce more progressive rates in the one-off levy or deposit-share swap within the agreed financial envelope of 5.8 bln (euros)," she told a conference.
Lagarde also said Cyprus needed to reduce the size of its banking sector and restructure it.
The government’s latest draft plan submitted to parliament would exempt small savings account holders from the proposed levy on all deposits. Under the latest proposal, savers with less than 20,000 euros in their accounts will not pay the 6.75% levy that the government had agreed to over the weekend.
Under the original plan, all accounts under 100,000 euros would have paid the 6.75% tax, but accounts greater than 100,000 will still pay a 9.9% levy as outlined in the original agreement.
