Emergency meetings are being held between political and financial leaders in Cyprus in a frantic bid to find a solution to its bailout crisis.
It has been sparked by parliament’s rejection of a one-off tax of up to nearly 10 percent on savings over 100,000 euros. The levy is a condition for a 10 billion euro bailout.
Although the plan was changed to exempt savers with less than 20,000 euros, parliament still said no, leaving the prospect of its banks facing insolvency.
Germany’s Finance Minister Wolfgang Schaeuble warned those banks may never reopen after an extended public holiday: “One has to explain to the people of Cyprus that the Cypriot economic model – namely to lure financial assets to Cyprus by low taxes and convenient legal frame conditions – has failed. The reason: Cypriot banks are insolvent and the Cypriot state scarcely has access to international financial markets. Now we have to solve that problem.
“We cannot finance this model with the taxpayer’s money of other eurozone-members. In this way it is not sustainable economically. Hence Cyprus has to fulfil certain conditions as other countries do.”
Cypriots claimed the levy would have set a precedent for savers losing their money in the rest of the eurozone.
But even the most stalwart supporter is at a loss to see how Cyprus can find the extra almost six billion euros it needs as a prerequisite for its bailout.