Mar. 19 - Cyprus's parliament could reject a divisive tax on bank deposits later today. The move would push the island closer to a default and banking collapse and have serious implications for the rest of the euro zone. Joel Flynn reports
▲ Hide Transcript
▶ View Transcript
It makes up just 0.2% of the euro zone economy but the crisis in Cyprus could shake the foundations of the whole bloc.
The Cypriot government has now proposed sparing small savers from a divisive tax on bank deposits.
But the Cypriot President believes with no party majority parliament is still likely reject a proposed bailout plan.
That will leave the tiny island facing default and a banking collapse.
SOUNDBITE Cypriot President, Nicos Anastasiades, saying (English):
"The feeling I'm having is that the house is going to reject the bill." (Reporter asking: Why is that?) "Because they feel and they think it's unjust and that it is against the interests of Cyprus at large." (Reporter asking: How will you treat this information and what will you do with it?) "We have our own plans."
Euro zone leaders agreed at the weekend to give Cyprus a 10bln euro bailout.
But the deal is on condition Cypriot banks raise the rest of the money from savers.
That's proving highly controversial although there's no sign yet that confidence in banks outside Cyprus has been lost.
Credit Agricole's Adam Myers.
SOUNDBITE: Credit Agricole Economist, Adam Myers, saying (English):
"Provided that policy makers can reassure southern European depositors that there is a uniqueness to the Cypriot situation and they're not really interested in taxing small account holders then we shouldn't see too much of a significant bleed from here on in."
Banks in Cyprus will remain closed until Thursday to avoid a bank run.
And the stock market has been suspended.
But the French Finance Minister has been playing down the risks to the rest of the euro zone.
(SOUNDBITE) (English) FRENCH FINANCE MINISTER PIERRE MOSCOVICI SAYING:
"We are dealing with a specific situation which is a risk that doesn't create contagion. And we will address this question. Now it's up to the Cypriot government and parliament to take the right decisions."
The new deal involves exempting savers with less than 20,000 euros but that still leaves a funding hole.
And it's not clear how that will be plugged.
Moscow has denied rumours it might help - despite many Russians holding accounts in Cyprus.
But the euro zone too has also made it clear it won't raise its offer any higher.