* Parliament defeats bill 36-0 with 19 abstentions
* EU says no bailout unless Cyprus depositors contribute
* Cypriot finance minister in Moscow to seek aid
* Cypriot, Russian presidents talk by phone
By Michele Kambas and Karolina Tagaris
NICOSIA, March 19 Cyprus's parliament
overwhelmingly rejected a proposed levy on bank deposits as a
condition for a European bailout on Tuesday, throwing
international efforts to rescue the latest casualty of the euro
zone debt crisis into disarray.
The vote in the tiny legislature was a stunning setback for
the 17-nation currency bloc, thrusting it into uncharted waters;
lawmakers in Greece, Portugal, Ireland, Spain and Italy have all
accepted unpopular austerity measures over the last three years
to secure European aid.
With hundreds of demonstrators facing riot police outside
parliament and chanting "They're drinking our blood", the ruling
party abstained and 36 other lawmakers voted unanimously to
reject the bill, bringing the Mediterranean island, one of the
smallest European states, to the brink of financial meltdown.
EU countries said before the vote that they would withhold
10 billion euros ($13 billion) in bailout loans unless
depositors in Cyprus, including small savers, shared the cost of
the rescue; the European Central Bank had threatened to end
emergency lending assistance for teetering Cypriot banks, which
were hard hit by the financial crisis in neighbouring Greece.
The demonstrators were unbowed: "This is a great decision
for Cyprus," said Andreas Miltiadou, a 65-year-old pensioner
among the crowd. "The voice of the people was heard."
Dutch Finance Minister Jeroen Dijsselbloem, who chairs the
Eurogroup of finance ministers, said the bloc "deeply regretted"
the vote but that the bailout offer still stood providing the
conditions were met. "The ball is in Cyprus's court," he said.
Euro zone paymaster Germany, facing an election this year
and increasingly frustrated with the mounting cost of bailing
out its southern partners, said Cyprus had no one to blame but
DEBTS TOO HIGH
"Cyprus requested an aid programme," German Finance Minister
Wolfgang Schaeuble told ZDF television. "For an aid programme we
need a calculable way for Cyprus to be able to return to the
financial markets. For that, Cyprus's debts are too high."
Newly elected President Nicos Anastasiades was due to meet
party leaders at 9 a.m. (0700 GMT) on Wednesday to explore a way
Finance Minister Michael Sarris left for Moscow on Tuesday
to scout for support, amid speculation Russia could step up,
given the high level of Russian deposits in Cypriot banks.
Anastasiades held a "fruitful and constructive" phone call with
Russian President Vladimir Putin after the vote, the Cypriot
Europe's demand at the weekend that Cyprus break with
previous EU practice and impose a levy on bank accounts caused
outrage among Cypriots, who emptied bank cash machines, and
unsettled financial markets.
Combined with Anastasiades' refusal to accept a levy of more
than 10 percent on deposits above 100,000 euros, that meant
taxing smaller accounts too, which savers had thought were
protected by state guarantees.
An important issue in negotiations has been the high level
of deposits held in the island's banks by non-EU citizens and
companies, notably from Russia, where Cyprus has established
itself as a major provider of offshore financial services.
Finance Minister Sarris denied by text message to Reuters
reports that he had resigned, which had rattled markets' nerves
as lawmakers were poised to vote.
Stunned by the backlash to the proposed levy, euro zone
finance ministers urged Nicosia on Monday to avoid taxing
accounts below 100,000 euros, and instead increase the levy on
big accounts, which have always been unprotected by the state
The European Union and International Monetary Fund are
demanding Cyprus raise 5.8 billion euros from bank depositors to
secure the bailout it needs to rescue its financial sector.
A revised draft bill would have exempted savings under
20,000 euros from a 6.75 percent levy on deposits of less than
100,000 euros, leaving a shortfall. But that was not enough to
sway lawmakers to accept the tax.
"You can't take a 10,000-metre jump without a parachute. And
that's what they're asking of us," said George Perdikis of the
French Finance Minister Pierre Moscovici said the euro zone
could not lend Cyprus any more, since the country's debt would
become unmanageable for its 1.1 million people.
"Above 10 billion euros we are entering into a size of debt
that is not sustainable," Moscovici told reporters in Paris.
International market reaction has been muted so far but that
"In the very short term, this will be a small victory for
the more rational observers who had looked at this move as,
frankly, outrageous. But it leaves Pandora's Box wide open,"
Mike Moran, senior currency strategist at Standard Chartered in
New York, said of the plan to make bank depositors contribute.
While Brussels has emphasised that the measure was a one-off
for a country that accounts for just 0.2 percent of European
output, fears have grown that savers in other, larger European
countries might be spurred to withdraw funds.
Dijsselbloem, the Eurogroup chair, said there would be no
need to impose a levy in any of the 16 other euro countries.
Deutsche Bank Chief Executive Anshu Jain said in Frankfurt:
"We see near-term contagion risk as limited. This is unlikely to
be a model for other European Union states."
Some Cypriots hope they can get aid from Russia, which has
bailed out Cyprus in the past. Many Russians keep their money in
Cyprus and operate businesses from there.
Russian authorities have denied that the Kremlin might offer
more money, possibly in return for a future stake in Cyprus's
large but as yet undeveloped offshore gas reserves, which have
raised the island's strategic importance.
An influx of Russian money and influence since the collapse
of the Soviet Union has led some Brussels officials to complain
privately that Cyprus acts at times as a "Trojan donkey" for
Moscow inside the European Union since it joined in 2004.
Banks in Cyprus are to remain shut on Wednesday to avoid a
bank run. The island's stock exchange will also be closed on