* Cyprus parliament postpones vote on levy
* President says cash-strapped island had no choice
* Deposit losers will get gas-guaranteed equity
* Cypriots rush to cash points to withdraw money
By Michele Kambas
NICOSIA, March 17 Cyprus was working on a
last-minute proposal to soften the impact on smaller savers of a
bank deposit levy after a parliamentary vote on the measure
central to a bailout was postponed until Monday, a government
In a radical departure from previous aid packages, euro zone
finance ministers want Cyprus savers to forfeit a portion of
their deposits in return for a 10 billion euro ($13 billion)
bailout for the island, which has been financially crippled by
its exposure to neighbouring Greece.
The decision, announced on Saturday morning, stunned
Cypriots and caused a run on cash points, most of which were
depleted within hours. Electronic transfers were stopped.
The originally proposed levies on deposits are 9.9 percent
for those exceeding 100,000 euros and 6.7 percent on anything
The Cypriot government on Sunday discussed with lenders the
possibility of changing the levy to 3.0 percent for deposits
below 100,000 euros, and to 12.5 percent for above that sum, a
source close to the consultations told Reuters on condition of
The source said the discussions had the "blessing" of a
troika of lenders from the European Commission, the IMF and the
European Central Bank.
In Brussels, a spokesman for Olli Rehn, the European
commissioner in charge of economic affairs, said discussions
were still under way in Cyprus.
"If the Cypriot leaders agree on a more progressive scale
for the one-off levy, in view of making it fairer for smaller
savers and provided this would have the same financial impact,
the Commission would be ready to recommend that the Eurogroup
endorse such an agreement," the spokesman said.
The move to take a percentage of deposits, which could raise
almost 6 billion euros, must be ratified by parliament, where no
party has a majority. If it fails to do so, President Nicos
Anastasiades has warned, Cyprus's two largest banks will
One bank, the Cyprus Popular Bank, could have its
emergency liquidity assistance (ELA) funding from the European
Central Bank cut by March 21.
A default in Cyprus could unravel investor confidence in the
euro zone, undoing the improvements fostered by the European
Central Bank's promise last year to do whatever it takes to
shore up the currency bloc.
A meeting of parliament scheduled for Sunday was postponed
for a day to give more time for consultations and broker a deal,
political sources said. The levy was scheduled to come into
force on Tuesday, after a bank holiday on Monday.
BREAKS A TABOO
Making bank depositors bear some of the costs of a bailout
had been taboo in Europe, but euro zone officials said it was
the only way to salvage Cyprus's financial sector.
European officials said it would not set a precedent.
In Spain, one of four other states getting euro zone help
and seen as a possible candidate for a sovereign rescue,
officials were quick to say Cyprus was a unique case. A Bank of
Spain spokesman said there had been no sign of deposit flight.
But the chief of Greece's main opposition, the anti-bailout
Syriza party, Alexis Tsipras, blamed the move on German
Chancellor Angela Merkel, according to Greek state news agency
"We must all together raise a shield to protect the peoples
(of Europe) from Ms Merkel's criminal strategy," said Tsipras,
who wants a pan-European debt conference to forgive debt.
The crisis is unprecedented in the history of the
Mediterranean island, which suffered a war and ethnic split in
1974 in which a quarter of its population was internally
Anastasiades, elected only three weeks ago, said savers will
be compensated by shares in banks guaranteed by future natural
Cyprus is expecting the results of an offshore appraisal
drilling this year to confirm the island is sitting on vast
amounts of natural gas worth billions.
In a televised address to the nation on Sunday, Anastasiades
said he had to accept the tax in return for international aid,
or else the island would have faced bankruptcy.
"The solution we concluded upon is not what we wanted, but is
the least painful under the circumstances," Anastasiades said.
With a gross domestic product of barely 0.2 percent of the
bloc's overall output, Cyprus applied for financial aid last
June, but negotiations were stalled by the complexity of the
deal and the reluctance of the island's previous president to
International Monetary Fund Managing Director Christine
Lagarde, who attended the meeting, said she backed the deal and
would ask the IMF board in Washington to contribute to the
According to a draft copy of legislation, failing to pay up
would be a criminal offence liable to three years in jail or a
50,000 euro fine.
Those affected will include rich Russians with deposits in
Cyprus and Europeans who have retired to the island, as well as
"I'm furious," said Chris Drake, a former Middle East
correspondent for the BBC who lives in Cyprus. "There were
plenty of opportunities to take our money out; we didn't because
we were promised it was a red line which would not be crossed."
"I've lost several thousand," he told Reuters.
British finance minister George Osborne told the BBC on
Sunday that Britain would compensate its 3,500 military
personnel based in Cyprus.
Anastasiades's right-wing Democratic Rally party, with 20
seats in the 56-member parliament, needs the support of other
factions for the vote to pass. It was unclear whether even his
coalition partners, the Democratic Party, would fully support
Cyprus's Communist party AKEL, accused of stalling on a
bailout during its tenure in power until the end of February,
would vote against the measure. The socialist Edek party called
EU demands "absurd".
"This is unacceptably unfair and we are against it," said
Adonis Yiangou of the Greens Party, the smallest in parliament
but a potential swing vote.
Many Cypriots, having contributed to bailouts for Ireland,
Portugal and Greece - Greece's second bailout contributed to a
debt restructuring that blew the 4.5 billion euro hole in
Cyprus's banking sector - are aghast at their treatment by
Cyprus received a "stab in the back" from its EU partners,
the daily Phileleftheros said.
But it and another newspapers highlighted the danger of
plunging the banking system into further turmoil if lawmakers
sat on the fence.
"Even if the final agreement is wrong, if this is not
approved by parliament the damage will be even greater," Politis
economics editor Demetris Georgiades said in an editorial.