2013-03-21 13:41:55
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.