Cyprus's parliament reject bank levy raising questions over the bailout

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imagesCyprus stood on the brink of bankruptcy last night after its MP’s voted against a bailout deal that would have taxed bank deposits. The decision sets in motion a showdown with its European creditors who are insisting that the island contribute towards its rescue package or risk going bust. EU countries stated prior to the vote that they would not give the loan of 10 billion euros unless Cyprus contributed towards the cost of the rescue. The European Central Bank has threatened to end emergency loans for Cypriot banks if they do not cooperate. However people outside the parliament showed their agreement with the historical ‘OXI’ (No) Vote. The overwhelming majority of Cypriots demonstrating believed that ‘the voice of the people was heard’. Even the Cypriot President Anastasiades stated prior to the vote that that he felt the parliament was going to reject the levy ‘because they feel and they think that it is unjust and it’s against the interest of Cyprus at large’. He did however also state that a no vote could lead to financial chaos and an eventual exit from the single currency. A revised draft was presented to Parliament which would have seen anyone with savings under 20,000 Euros exempt from the tax. The move was a departure from the agreement reached in Brussels over the weekend which stipulated that all deposits would be charged. However even this amendment was not enough to convince lawmakers; 36 of whom voted against the measures and 19 abstaining. Cyprus needs 17 billion Euros to pull bank from the brink after its financial sector was hit hard by the crisis in Greece. The troika, comprising the IMF, EU and ECB, have pledged 10 billion Euros on the condition that the Cypriots come up with 5.8 billion Euros themselves. They have also threatened to withdraw emergency ECB funding from two stricken banks, which is key to Cyprus’s immediate future. If this funding is withdrawn the two largest banks will go bust and Cyprus will be forced to exit the euro. The Cypriot Government faces a tough choice; return to the troika and renegotiate a bailout or attempt the find other sources of finance. The outcome remains to be seen.