Cyprus's parliament rejected an unprecedented levy on bank deposits, dealing a blow to European plans to force depositors to shoulder part of the country's rescue in a standoff that risks renewed tumult in the euro area.
Cypriot legislators in the capital Nicosia voted 36 against to none in favor of the proposal in a show of hands today. There were 19 abstentions. Hammered out by euro-area finance chiefs over the weekend, the deal had sought to raise 5.8 billion euros ($7.5 billion) by drawing funds from Cyprus bank accounts in return for 10 billion euros in international aid.
The ECB said it "takes note of the decision of the Cypriot Parliament and is in contact with its Troika partners" from the International Monetary Fund and the European Commission, according to a statement. "The ECB reaffirms its commitment to provide liquidity as needed within the existing rules."
The deposit levy, championed by Germany and pulled together in a 10-hour negotiation session over the weekend in Brussels, drew worldwide criticism that it broke a taboo over the safety of bank-deposit savings and risked launching a bank run in other European countries. Cypriots awoke March 16 to find bank transfers blocked, prompting images of long lines at ATMs.
"It seems at this moment there is no third way," Averof Neophytou, vice-president of Anastasiade's Disy party, told the chamber before the vote in which his party abstained. "But we must try to find a different path."
David Fuller's view I was away on Fullermoney business when
the Cyprus Deposit Levy imposed by Northern European countries was announced.
Consequently, this confiscation attempt sounded to me like a premature April
Fool's Day joke.
One can understand the frustration of Northern European politicians, in fear of their angry electors, but the plan seemed like a dangerous and potentially contagious precedent to me. I imagine that Cypriot bankers are also relieved that their compatriots voted down the levy, even if they enjoy visits from those nice Russian depositors, but not necessarily their bulky-suited representatives.
Europe is fortunate to have 'Super' Mario Draghi, who will presumably pick up the pieces.