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Cypriots held up their palms reading "No" during a protest against a bailout plan outside the Parliament in Nicosia on Monday.
By LIZ ALDERMAN and LANDON THOMAS Jr.
NICOSIA, Cyprus — The lights were dimmed and the doors were locked. But
inside a branch of Laiki Bank, one of Cyprus’s two dominant banks, a few
silhouettes glided about Monday, filling cash machines to calm a wave
of anxiety that has washed over this tiny island since European leaders
took the unprecedented step Saturday of trying to force depositors to
pay for part of an international bailout.
Outside, the A.T.M. coughed up 50-euro bills, as few as two or four at a
time — a relief, since banks will remain closed through Wednesday. Yet
it was still not enough to assuage fears.
“How can I trust any bank in the euro zone after this decision?” asked
Andreas Andreou, 26, an employee at a trading company.
“I’m lifting all my deposits as soon as the banks open. I’d rather put the money in my mattress.”
In this windswept capital, and in the halls of power elsewhere in
Europe, much of the day was given over to cross-border arguing and a
public reluctance for anyone to take responsibility — some might say
blame — for a decision that suddenly seemed like it might not be such a
great idea, after all.
As a plan to tax deposits in exchange for a 10 billion euro financial
lifeline for this troubled nation frayed nerves, it quickly set off
tremors far beyond Cyprus’s shores. Stock markets around the world fell
Monday — though American markets remained calm — amid the stark
realization that Europe’s policy makers had made a significant departure
from past efforts to keep the euro zone together.
Economists said the Cyprus plan set a worrisome precedent that could
backfire. The plan “risks
setting off a bank run and contagion,” said
Michael T. Darda, chief economist at MKM Partners.
For the first time since the onset of the sovereign debt crisis in Europe
and the bailouts of Greece, Portugal and Ireland, ordinary bank
depositors — including those with insured accounts — were being called
on to bear part of the cost, to the tune of 5.8 billion euros, about
$7.5 billion, of the 10 billion euro package.
The plan also would wipe out so-called junior bondholders in Cypriot
banks, who would give up 1.4 billion euros in holdings. Only senior
bondholders, who have paid a premium to be first in line for repayment
of their investments, would be fully protected.
Under the terms of Cyprus’s bailout, the government must raise 5.8
billion euros by levying a one-time tax of 9.9 percent on depositors
with balances of more than 100,000 euros, or $129,500. Those with
balances below that threshold would pay 6.75 percent, an asset tax that
would still hit pensioners and the lowest-income earners hard.
Cyprus’s president, Nicos Anastasiades, accused European Union
leaders of using “blackmail” to get him to agree, and sought Monday to
compel policy makers in Brussels to soften the terms.
As lawyers in Cyprus questioned the legality of both taxing deposits
that are supposed to be insured up to 100,000 euros, and confiscating
sums above that, Mr. Anastasiades postponed a parliamentary vote on the
package until Tuesday, as signs emerged that lawmakers might not
approve.
In Brussels, the club of 17 euro zone finance ministers that had signed
the bailout plan for Cyprus held an emergency conference call Monday
evening and tiptoed back from terms of the arrangement, by agreeing to
consider a new deal that could lighten the burden for less well-to-do
Cypriots.
In a statement, they said small depositors “should be treated
differently from large depositors,” and said they were open to modifying
the tax on those with less than 100,000 euros. It also appeared from
comments made by officials that the I.M.F. was leaning that way as well.
But Jeroen Dijsselbloem, the Dutch finance minister who serves as the
president of the Eurogroup, suggested that any new arrangement still
would need to deliver 5.8 billion euros.
The brinkmanship followed a protest of about 800 people gathered in
front of the presidential palace, shouting angrily at Mr. Anastasiades
and inveighing against Germany and European leaders as he entered the
building to meet with his cabinet.
“Merkel, U stole our life savings,” read one banner tied to a bus stop. “EU, who is next, Spain or Italy?” read another.
This article has been revised to reflect the following correction:
Correction: March 19, 2013
Because of an editing error, an earlier version of this article misstated the dollar equivalent of the portion of Cyprus’s bailout package that was to be paid by ordinary bank depositors under a new plan. It is $7.5 billion, not million.
Correction: March 19, 2013
Because of an editing error, an earlier version of this article misstated the dollar equivalent of the portion of Cyprus’s bailout package that was to be paid by ordinary bank depositors under a new plan. It is $7.5 billion, not million.
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