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European stock markets turned green today after the Cypriot Parliament rejected the bailout proposal that would have taxed deposits in the country late evening yesterday.
This is the first time a member of the Eurozone on the verge of a collapse defied the troika as opposed to the unpopular stance made by previously bailed out countries of Greece, Portugal, Spain, Ireland, and Italy.
Not a single member of the island-state’s parliament voted for the €10 billion rescue package that came with a condition that Cyprus raises €5.8 billion by taxing bank accounts, with members of President Nicos Anastasiades’ party abstaining.
Rallyists in the capital Nicosia cheered in an act of defiance to the demands of Brussels, which seemed to have taken a step back on the measure and toned down after the proposal was met with an unanticipated negative reaction across the region.
Change of Tone
Germany Chancellor Angela Merkel stated she regrets the decision made by the Cyprus’ lawmakers but said she respects the decision, in an apparent change of mood from previous days before the proposal got rejected.
Previously, Cyprus was warned the European Central Bank may stop providing emergency assistance to banks in the country if it rejects the proposal and the same message is being repeated by finance ministers in the 17-member currency bloc.
Political party leaders are now engaged in an emergency meeting whilst the country’s Finance Minister Michalis Sarris continues to court Russia’s help but said no offers were made yet.
Russia, which provided a €2.5 billion loan to Cyprus in 2011, is dragged into the picture as about 40% of bank deposits proposed to be taxed belonged to Russian citizens and corporate entities.
Cyprus is said to be leveraging the trillion cubic feet natural gas deposits discovered in its offshore territory to obtain a deal from Russia in order to lessen the blow should a deposit tax be imposed.
The proposal, which originally planned to levy 6.75% for accounts of €100,000 or less and 9.9% for those above €100,000, was revised to spare tax on deposits of €20,000 or less, 6.75% on accounts between €20,000 and €100,000 whilst retaining the 9.9% rate for deposits beyond €100,000.
Plan B
Cyprus is now trying to formulate a plan B following the rejection, with reports that the religious sector in the country offering their resources to help aid the country now on the verge of a collapse.
Banks are still closed as well as the local stock market amidst fears that massive withdrawals may happen when they finally open.
The British Government has already flown in one million euros for its citizens and armed forces personnel in the event of a short of available funds.
Meanwhile, European markets, which had been in the red since they opened on Monday, were now regaining their losses after Cyprus decision. Dax was up 0.4%, CAC40 by 0.5%, whilst FTSE 100 was down -0.1%.
Asian markets also closed positively, with the Hang Seng up by 2.2%, Nikkei 225 by 2%, though the ASX200 still down at -0.3%.
