* Cyprus faces make-or break vote over deposit tax
* President says cash-strapped island had no choice
* Deposit losers will get gas-guaranteed equity
* Finance ministry seeks to soften tax blow
By Michele Kambas
NICOSIA, March 18 Cyprus's government was
working on a proposal to soften the blow of a bank deposit levy
on smaller savers ahead of a parliament vote on Monday on the
measure central to a euro zone bailout designed to avert
Breaking with previous EU practice that depositors' savings
are sacrosanct, Cyprus and international lenders agreed at the
weekend that savers in the island's outsized banking system
would take a hit in return for the offer of 10 billion euros
($13 billion) in aid.
That not only infuriated Cypriots, it unnerved depositors in
the euro zone's weaker economies and investors fearing a
precedent that could reignite market turmoil.
The euro fell sharply early on Monday in Asian trade.
On Monday afternoon, Cyprus's fractious 56-member parliament
is scheduled to vote on whether depositors should forfeit part
of their savings to fund a bailout, mainly needed to
Approval of the deposit cut is far from a given. No party
has an absolute majority, three parties say outright they will
not back the tax, and a vote initially planned for Sunday was
rescheduled to allow more time to build a consensus.
Faced with a growing public backlash, Cypriot finance
ministry officials began discussions with lenders on Sunday to
lessen the blow for smaller savers.
A source close to the consultations told Reuters authorities
were hoping to cut the tax band to 3.0 percent from 6.7 percent
for deposits under 100,000 euros.
The rate for deposits above that would then be jacked up to
12.5 percent from 9.9 percent.
In Brussels, a spokesman for Olli Rehn, the European
commissioner in charge of economic affairs, said changes to the
amounts paid by different depositors could be acceptable given
that the financial impact would be the same.
News of the tax triggered a run on cashpoints in Cyprus over
the weekend. Monday is a bank holiday and measures need to be
approved before banks reopen on Tuesday.
Cypriot President Nicos Anastasiades, a conservative elected
just three weeks ago, said the tax on deposits was an
alternative to a disorderly bankruptcy.
In a televised address, he said it was painful but "will
eventually stabilise the economy and lead it to recovery."
Savers who lost money would be compensated by shares in
commercial banks, with equity returns guaranteed by future
revenues expected from natural gas discoveries, Anastasiades
But many legislators remain unconvinced.
"Essentially parliament is called to legalise a decision to
rob depositors blind, against every written and unwritten law,"
said Yiannakis Omirou, speaker of parliament and head of EDEK,
the small Socialist party. "We refuse to subscribe to this."
Even though there was no immediate sign of savers taking
fright in other parts of Europe badly hurt by the regional debt
crisis, some feared a precedent had been set.
"European countries are very calm thinking it could never
happen to them. But we'll all get involved sooner or later,"
said Ana Garcia, a 62-year-old worker at a mental health centre