Cypriot "no" inspires Greeks to rail against austerity

A protester holds a Cypriot flag next to a Greek flag during a rally against a levy on bank deposits in Cyprus, outside of the European Union office in Athens March 19, 2013.

ATHENS (Reuters) - Greeks and opposition parties inspired by the Cypriot rejection of an unpopular bailout deal urged Athens on Wednesday to stand up to foreign lenders whose demands have resulted in repeated rounds of austerity that have made Greek life a misery.

Cyprus's parliament on Tuesday rejected a levy on bank deposits demanded in return for aid, raising the specter of a default for the island nation that could mean enduring wave after wave of spending cuts and tax rises, just like Greece.

"See what Cyprus did? We are proud of them," said Fey Papadopoulou, 22, a university student. "They should be an example for our politicians, who have succumbed to every demand."

Cyprus pleaded with Russia on Wednesday for a five-year extension and lower interest on an existing 2.5 billion euro ($3.22 billion) loan and 5 billion euros in new loans after voting down a euro zone plan for a 10 billion euro bailout.

"The Cypriots set an example to follow," left-leaning Eleftherotypia said in its leading editorial. "How can the Cypriots say 'no' and we can't even reject a single property tax?", ran a headline on Greek television channel Antenna.

Greece, which first sought aid from European Union and the International Monetary Fund in 2010, has yielded to demands for harsh austerity measures that have slashed household income by almost a third and sent unemployment up to a record 26 percent.

"Cyprus said 'No' on our behalf too," said Odysseas Panagiotou, a 45-year old clerk. "It's about time that our traitors - politicians - say a big 'No' to the troika demands."

The "no" vote from Nicosia comes just days before Athens and its lenders resume delicate talks on the implementation of the country's bailout, with creditors pushing Athens to respect past pledges to fire civil servants and stick to unpopular tax rises.

MERKEL'S STRATEGY

Whether Athens - which in the past has ignored riots and mass protests to approve austerity packages and avert bankruptcy - will be swayed by the latest outcry depends on whether Cyprus ends up bankrupt or finds a solution elsewhere, analysts said.

"If Cyprus goes bankrupt, then the government's argument that we must stay on the austerity path will be reinforced, but if it wins better bailout terms the main opposition's arguments will be stronger," said Thomas Gerakis, head of Marc pollsters.

Prime Minister Antonis Samaras's government - which has been scrambling to assure Greeks that their bank deposits are not at risk due to the Cypriot crisis - said late on Tuesday it supported Cyprus's choices.

But Greece's anti-bailout opposition, including the radical leftist Syriza party, rushed to accuse him and Finance Minister Yiannis Stournaras of bowing to the austerity demands of German Chancellor Angela Merkel.

"After the Cypriots' proud 'no', Mr. Samaras and Mr. Stournaras are the most faithful adherents of Ms. Merkel's strategy," said a statement from Syriza, Greece's most popular party according to a MARC/Alpha survey published on Tuesday.

"The Cypriot parliament shows the way of real negotiation, which no pro-bailout government in Greece even considered."

Syriza also interpreted a statement late on Tuesday by the European Central Bank to continue funding Cypriot banks within existing rules, as a sign of weakness on the part of creditors.

"And just like that, we found out that another way is possible," Syriza deputy Rena Dourou tweeted a few minutes after the ECB statement was released.

(Additional reporting by Renee Maltezou, editing by Deepa Babington and Paul Casciato)