The European Union was plunged into a new crisis on Tuesday night after the Cypriot Parliament overwhelmingly rejected a bank levy plan agreed by the Eurozone finance ministers at the weekend as part of a €10 billion ($13 billion) bailout package for the cash-strapped nation.
As the EU governments searched for a speedy solution to avoid a turmoil in the financial markets, they are pinning their hopes on President Nicos Anastasiades to come up with a new proposal acceptable to all parties represented in Parliament.
Faced with public outrage over the controversial plan to impose a one-off levy on all bank accounts on the island and opposition within the government, the President presented a compromise shortly before the Parliamentary debate in Nicosia, but it failed to win support even from a single member of Parliament.
Among the proposals to find a compromise was to spare small savers up to €20,000 from the proposed bank levy and to impose a one-time levy of 6.75 per cent on deposits between €20,000 and €100,000.
Deposits above that level are to be charged 9.9 per cent as agreed by the finance ministers on Saturday.
The bank levy plan is intended to raise a revenue of €5.8 billion.
After a heated debate in parliament, 36 MPs out of a total of 56 Parliamentarians voted against a legislation on the bailout package and the President’s compromise plan while 19 MPs abstained and one deputy failed to attend.
The rejection of the bailout deal by Parliament raised new fears that it could reignite the Eurozone debt crisis after a few months of relative stability.
Without the financial assistance from the EU and the International Monetary Fund, the Mediterranean island nation faced bankruptcy in May.
A major part of the financial rescue package is intended to recapitalise the country’s ailing banks, which are heavily exposed to the three-year-old sovereign debt crisis in Greece.
German finance minister Wolfgang Schaeuble said the outcome of Tuesday night’s vote did not mean that the bailout of Cyprus has failed.
The offer of a financial rescue package for the island is still lying on the table even though the conditions for that are not existing, he said in a TV interview on Tuesday night.
Schaeuble said he is not concerned about the risk of a contagion for other nations in the Eurozone.
“They are more stable today than in the past,” he said.
The Eurozone governments have also taken “adequate precautionary measures to ensure that Tuesday’s decision will not have any negative consequences for the rest of the Eurozone,” he said.
President of the euro group Jeroen Dijsselbloem said after the vote that the single currency bloc continues to be prepared to assist Cyprus in its reform efforts.
In a statement, Dijsselbloem said he “took note” of the decision of the Cypriot parliament on the government’s proposal for a one-off bank levy.
He renewed the Euro group’s offer on Monday to give Cyprus more room for manoeuvre over how it implements the proposed bank levy.
However, the Government in Nicosia must raise the €5.8 billion agreed to receive the €10 billion financial rescue package, he said.
The Euro group called upon the Cyprus government to present an alternative proposal as soon as possible.