Hundreds of protesters outside parliament in Nicosia voice their anger and anxiety over 'deeply unfair' conditions of EU deal
Angelique Chrisafis Nicosia
Hundreds of protesters outside the parliament building in Cyprus's capital broke into applause on Tuesday as legislators rejected the EU's bailout conditions that would have imposed a levy on all deposit accounts in the country.
The protesters, chanting "Cyprus belongs to its people!", praised the MPs but many were worried about the difficulties to come for the country, which remains on the brink of financial meltdown with its bailout plans in disarray.
After a heated parliamentary debate, during which MPs had called the levy "raw blackmail" and a catastrophe for Cyprus, the 56-seat parliament rejected the measure, with 36 in favour, 19 abstentions and one absent.
Tension had been mounting all day in Cyprus after the conservative president Nicos Anastasiades, who had first said that Cyprus had no choice but to accept the bailout with the deeply unpopular levy or go bankrupt, then announced that he fully expected parliament to reject the deal that he had negotiated.
The EU's bailout plan would have given an urgent €10bn (£8.5bn) to save Cyprus's hard-hit financial sector – which thanks to low-tax deals, has become flush with foreign cash and seen its banking sector swell to more than eight times the nation's GDP. But that money was dependent on Cyprus coming up with a further €5.8bn from bank-account holders.
The Nicosia government must swiftly come up with an alternative means of providing that share. As analysts have warned this week that without the bailout, the island could face a sovereign default and even a eurozone exit.
It was not certain what plan B proposals would be in discussions this morning. Nicholas Papademos, an MP from the centrist Democracy party, who had opposed the plan, told the media: "I hope we won't be negotiating under threat."
He said it was not fair that Cypriot banks who had already taken a huge hit from the Greek haircut should be "punished" for doing so.
Outside parliament, protesters said they were glad the "deeply unfair" proposed bank account levy was knocked back but still feared the next step in a country where two of the biggest banks face meltdown, unemployment is at a record high of 15% and austerity measures and paycuts are already well under way.
Lara Alphas, 31, a freelance designer demonstrating with her small child on her shoulders, said: "What worries people on the street is what comes next: further economic downturn, salary cuts, more austerity measures, recession. Great damage was done to the economy simply by the announcement of this measure."
Efthymia Alphas, Lara's sister, said: "I'm afraid of the measures that will come now, the privatisation of our good system of public services which will affect the island badly."
Anna Yiagiozi, 31, a performer, who was one of the first people to begin a parliament street protest on Monday with a banner saying "Hands off Cyprus!" said: "It's very important that the bailout can now be renegotiated by the Cypriot government.
"I only have €100 in the bank. My parents have a flower shop, they have been hit by the crisis and they are in debt. What I'm more worried about is the after-effect of this whole bank levy situation. It was a mistake, it will have consequences for the economy. I'm against the troika and their measures, we don't want to be owing anyone.
"For five years, the crisis has been knocking on our door, no one did anything, the Troika waited for us to be at our lowest point and then hit us. I lived in Greece and saw the impact there and now I'm seeing it here."
A veterinary nurse, who gave her name as Myrto, said even with a no vote, the "damage to confidence in the economy has been done. We are finished".
Banks in Cyprus had already been ordered to remain closed on Wednesday to avert a run. ATM machines were only dispensing the standard one-day limit. It was unclear whether they would be able to open on Wednesday.
The Cyprus Mail had earlier reported that banks planned extra security and crowd-control before opening.
Fiona Mullen, an analyst at Sapienta Economics in Nicosia said before the vote: "The banks staying closed is the only thing they can do for the time being."
She added: "If the parliament can't agree a yes vote banks could remain closed until politicians can get something that's acceptable to everybody rather than letting the banks fail."
The no vote came at the end of an extraordinary day of uncertainty in Cyprus. After outrage at the unprecedented EU bailout raid on all bank account deposits, including current accounts and no-interest accounts, the government had tried to tweak the deal. They proposed to exempt deposits under €20,000, charge a rate of 6.75% for amounts between €20,000 and €100,000, and maintain a 9.9% tax on deposits above that level.
But this was not enough for MPs to vote in favour. The conservative government, which did not have a majority in parliament, at first tried to postpone the vote for a second time but opposition MPs refused and stood up in parliament to denounce what one opposition party deputy called "a grab on the deposits of people who have worked all their lives, people who put their pensions in the bank".In the end, even the ruling party MPs distanced themselves form the deal.
Meanwhile, British Royal Air Force plane carrying 1m euros of contingency funds to British military personnel arrived on the island and the Cypriot finance minister, on a visit to Moscow to shore up Russian government support, was forced to text message Reuters to deny quick-spreading rumours that he had resigned. Outside parliament, protestors said they were glad the "deeply unfair" proposed bank account levy was knocked back but still feared the next step in a country with two of the biggest banks facing meltdown, unemployment at a record high of 15% and austerity measures and pay-cuts already well under way.
Lara Alphas, 31, a freelance designer demonstrating with 3 half year old on her shoulders, said: "What worries people on the street is what comes next: further economic downturn, salary cuts, more austerity measures, recession, great damage was done to the economy simply by the announcement of this measure this weekend." Myrto, a veterinary nurse, said even with a no vote, the "damage to confidence in the economy has been done. We are finished".
"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," said Mike Moran, senior currency strategist at Standard Chartered in New York.
On one of Nicosia's main shopping streets, business owners said trade was already down on Tuesday. Andreas Aloupas, 80, who had run a jewellery shop for 55 years said that with the banks still shut and people glued to rolling TV news "people are afraid to spend." But he said sales had been dropping for more than a year due to the crisis. "This situation is very sad for Cyprus."
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