Cyprus rejects bank seizure plan

NICOSIA, Cyprus – Lawmakers in Cyprus decisively rejected a plan on Tuesday to seize up to 10 percent of people’s bank deposits in order to secure an international bailout and prevent a collapse of the country’s banks.

The vote leaves the tiny Mediterranean economy in financial limbo, but hundreds of protesters outside Parliament cheered and sang the national anthem when they heard the bill failed.

Cyprus needs $20.4 billion to bail out its heavily indebted banks and shore up government finances. If it doesn’t get the money, the banks could fail, Cyprus’ government finances could be ruined for years and the country could face expulsion from the 17-country euro currency union. Eurozone countries and the International Monetary Fund have pledged to provide $12.9 billion in rescue loans if Cyprus can come up with the remainder.

With the country’s banks closed since Saturday to avoid a run, Cypriot leaders will now try to hatch a more politically palatable plan that might also satisfy officials in the eurozone and IMF.

The plan that was rejected Tuesday – with 36 votes against, 19 abstentions and one absence – had been amended to shield the smallest depositors, those with under $25,858 in the bank. But deposits up to $129,290 are supposed to be insured by all euro countries. There has been widespread condemnation of the plan throughout Europe since it was announced over the weekend.

Global financial markets were on edge Tuesday, but investors so far have taken the latest turmoil in Europe in stride. The Cypriot economy is tiny and there is hope that Europe’s political leaders can find a way to bolster the country’s finances and prevent it from leaving the euro.