Mar 20th 2013, 0:12 by K.H. | NICOSIA
Defiant lawmakers in Cyprus rejected a bill on Tuesday March 19th that would
impose a universal levy on bank deposits, calling it a shameless attempt to
blackmail a small island. The levy had been agreed to last week with the
euro-zone group negotiating a bail-out for Cyprus. The governing Democratic
Rally party, which proposed it, chose to abstain. The other five parties in
parliament voted against.
The levy was supposed to raise 5.8 billion ($7.5 billion) on top of a 10
billion bail-out by the European Union and International Monetary Fund, to
spare criticism that once again north European taxpayers were footing the bill
for Mediterranean idlers. Nicos Anastasiades, the Cypriot president, said he
would quickly draw up a plan B.
Mr Anastasiades has to move fast. Cypriot banks have already been closed for
three working days, though cash machines are being regularly refilled. When the
banks re-open a run is possible. Locals will transfer their savings to safe
deposit boxes and mattresses. Owners of foreign companies based on Cyprus
because of its low tax rate and lax application of anti-money laundering rules
will move funds to a more stable jurisdiction.
Plan B, say government advisers, would require state pension funds to hand over
about 4 billion of their reserves. Cyprus would ask Russia for the other 2
billion, arguing that Russian companies, with an estimated 25 billion stashed
in Cyprus, would then no longer face the prospect of losing 10-12% of their
deposits. Michalis Sarris, the finance minister, flew to Moscow as soon it
became clear the bill would not be approved. His first task will be to seek an
extension, and perhaps an interest-rate cut, for Cyprus s current 2.5 billion
loan.
If the EU and IMF raise objections to nationalising the pension funds, Cyprus
will need more cash. One scheme is for a Russian bank to pay one euro for Laiki
Bank, Cyprus s second-largest, and cover the 4 billion cost of
recapitalisation. Gazprombank, the Russian gas giant s banking arm, may be
interested. In the meantime, bankers in Nicosia hope the European Central Bank
won t pull the plug on the emergency liquidity assistance (ELA) that keeps
Cypriot lenders afloat.