Cyprus ’making own plans’ as president says bailout vote will fail

Country’s controversial deposit tax unlikely to be passed this afternoon when leaders meet to vote on bailout package

Tue, Mar 19, 2013, 13:07

Cyprus ’ proposed bailout package is unlikely to be passed when politicians meet to vote on a revised draft of the bill this afternoon, president Nikos Anastasiades said today.

Mr Anastasiades said the government "is now making its own plans" and "the parliament will not approve the deal because it thinks it is unfair".

The Cypriot public has reacted to a proposed tax on savings in the country’s banks under a bailout package drawn up by European finance ministers and the European Central Bank.

A revised draft of the bill would exempt savings under €20,000, with a rate of 6.75 per cent for amounts between €20,000 and €100,000 and a 9.9. per cent tax on deposits above that level.

Government spokesman Christos Stylianides also said that the deal is likely to be rejected this afternoon when lawmakers meet at 4pm GMT. Mr Stylianides said, "It looks like it won't pass," in an interview with local radio earlier today.

Investec bank Ireland analyst Justin Doyle said: “There have been rumours that there will be another delay as the government looks to alter the package. The individual measures include a ‘haircut’ for domestic and foreign bank depositors; higher withholding taxes on capital income; an increase in corporation tax rate; and a bail-in of junior bondholders.

“What is known is that the introduction of the levy was on the insistence of various European finance ministries and the ECB.”

The single currency was also impacted by the uncertainty around the deal. The euro currency hovered near a three-month low versus the dollar this morning as a plan to tax Cyprus savings accounts to help fund a bank bailout fuelled fears about the stability of euro zone financial institutions.

There has been limited fallout from the Cyprus deal on other euro zone countries so far as the rise in Spanish and Italian debt yields appeared to be contained, though analysts were guarded about the near term.

"Looking at European and US markets yesterday, the injury seems to be shallow. But it would be premature to say it will heal in just two days," said Sumitomo Mitsui Bank chief strategist Daisuke Uno.

The euro traded at $1.294, slightly higher than late US levels, but still close to a three-month low of $1.288 hit yesterday, with its 200-day moving average of $1.287 today a strong support.

It recouped some of its losses in late US yesterday trade after euro zone ministers urged Cyprus to let smaller savers escape the proposed levy on bank deposits.

Additional reporting - Reuters