Patrick Baz/Agence France-Presse — Getty Images
Cypriots held up their palms reading "No" during a protest against a bailout plan outside the Parliament in Nicosia on Monday.
By LIZ ALDERMAN Published: March 18, 2013
NICOSIA, Cyprus — Leaders in Cyprus and Brussels scrambled Monday to
contain the fallout from an unprecedented effort to force ordinary bank
depositors in this crisis-hit nation to pay for part of an international
bailout, as stock markets faltered on concerns about the wider
implications for Europe’s long-running debt crisis.
President Nicos Anastasiades was trying to compel policy makers in
Brussels to soften demands for a tax to be assessed on Cypriot bank
deposits, saying European Union leaders used “blackmail” to get him to
agree to those conditions early Saturday in order to receive a bailout
package worth 10 billion euros, or $13 billion.
Cyprus, whose banking system is verging on collapse, is now the fifth
nation in the 17-member euro union to seek financial assistance since
the crisis broke out three years ago.
As anger in this country swelled against the measure, Mr. Anastasiades
delayed an emergency parliamentary vote on the bailout plan until
Tuesday, the second step in as many days. Faced with a lack of support
from lawmakers, the vote could be delayed until as late as Friday.
The government also said it would keep Cypriot banks shuttered until at
least Wednesday, beyond a bank holiday that was supposed to end Monday, a
move aimed at staving off a possible bank run.
Cyprus’s banking association issued a statement calling on people to
remain “calm,” saying it was ready to implement whatever measures were
needed to protect the stability of the banking sector. The association
said it would instruct banks to load automated teller machines with cash
while banks remained closed.
Financial markets stuttered on the news, with Asian stocks suffering the
most, closing down about 2 percent. European market indexes were off
about 1 percent by the end of the session, and Wall Street shares were
less than 0.2 percent lower in afternoon trading.
For the first time since the onset of the euro zone sovereign debt
crisis and the bailouts of Greece, Portugal and Ireland, ordinary
depositors — including those with insured accounts — were being called
on to bear part of the cost, €5.8 billion.
The previous bailouts have been financed by taxpayers, and the new
direction raised fears that depositors in Spain or Italy, two countries
that have struggled economically of late, might also take flight.
A crowd of protesters gathered in front of the presidential palace,
shouting angrily at Mr. Anastasiades and inveighing against Germany and
European leaders as he entered the building to meet with his cabinet.
“Merkel, U stole our life savings,” read one banner tied to a bus stop.
“EU, who is next, Spain or Italy?” read another.
Miguel Arias Cañete, Spain’s agriculture minister, told journalists in
Brussels on the sidelines of a European Union meeting on Monday that he
saw no risk of contagion. Spain’s banking system had undergone “a very
rigorous clean-up,” the minister said, and were now in a “magnificent
situation” following their bailout last year.
The finance ministers from the euro zone countries were to take up the
Cyprus issue on a conference call later Monday. Jeroen Dijsselbloem, the
president of the group, had declined Saturday to rule out taxes on
depositors in countries beyond Cyprus, although he said such a measure
was not being actively considered.
A key question for the finance ministers was expected to be whether any
revised formula for the tax on deposits could still deliver the 5.8
billion euros agreed to in the bailout deal. The plan, a so-called
bail-in, also would wipe out 1.4 billion euros held by junior
bondholders in Cypriot banks. Only senior bondholders, who have paid a
premium to be first in line for repayment of their investments, would be
fully protected.
Joerg Asmussen, a member of the European Central Bank governing council,
suggested that creditors may not object to a revision of the bailout
terms.
