MercoPress. South Atlantic News Agency

Cyprus closes banks to give time for Parliament to vote on bail-out package

Local and foreign investors furious with President Jeroen Dijsselbloem

Finance ministers from the Euro-zone have asked Cyprus to reduce the burden on small investors from a proposed levy on savings, linked to a bailout. Plans for a one-off tax of 6.75% on savings up to 100,000 Euros have outraged Cypriots.

Banks in Cyprus are to remain closed until Thursday, as efforts to revise an international bailout package continue. A parliamentary vote on the package has been repeatedly postponed, but is now expected on Tuesday. The 10bn-euro bailout agreed with the EU and IMF demands that all bank customers pay a one-off levy.

The government's efforts to shift more of the burden onto wealthier depositors enraged Russians, who form the bulk of overseas investors and have deposits worth billions of dollars in Cypriot banks.

Russian President Vladimir Putin called the proposed levy “unfair, unprofessional and dangerous”, and Moscow has expressed frustration Russia was not included in European decision-making on Cyprus.

Under the currently agreed terms of the levy, depositors with less than 100,000 Euros in Cyprus accounts would pay a one-off tax of 6.75%, while those with sums over that threshold would pay 9.9%. But the move has outraged Cypriots and sparked heavy cash withdrawals from banks.

Since the start of the financial crisis there has been a guarantee that deposits under 100,000 Euros in banks in the EU would be protected.

Many observers believe the Cypriot levy breaks the spirit of that agreement, and there is concern that it could also damage the confidence of depositors in other Euro-zone countries.

Euro-zone finance ministers - the Eurogroup - discussed the situation in a conference call on Monday evening. Following the talks, its president Jeroen Dijsselbloem issued a statement saying the group “continues to be of the view that small depositors should be treated differently from large depositors and reaffirms the importance of fully guaranteeing deposits below 100,000 Euros”.

He said Cyprus would “introduce more progressivity in the one-off levy” - in other words, shift the burden away from small savers towards bigger depositors - provided that the same amount of funds, 5.8bn euros, was raised. Mr Dijsselbloem urged “a swift decision by the Cypriot authorities and parliament to rapidly implement the agreed measures”.

The president's Democratic Rally has 20 seats in the 56-member assembly and needs other parties' support to ratify the deal. The vote remains too close to call, correspondents say.

Speaker Yiannakis Omirou, of the EDEK party, said: “Parliament is called to legalise a decision to rob depositors blind, against every written and unwritten law. We refuse to subscribe to this.”

Mr Anastasiades insists that without the bailout Cyprus could face bankruptcy and a possible exit from the Euro-zone - a fear echoed by European officials.