Cyprus MPs debate divisive EU-IMF bailout plan

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Protesters gathered outside the Cypriot parliament to denounce the plan

Cyprus' parliament has begun debating an EU-IMF bailout package, after the government proposed changes to a controversial bank levy.

MPs were due to vote on the plan, hours after President Nicos Anastasiades said they were likely to reject it.
The finance ministry has proposed exempting savers with smaller deposits, but opposition remains fierce.
The controversial tax is a condition for Cyprus to get a 10bn-euro loan to rescue its banks.
Meanwhile, the UK ministry of defence has said a plane carrying 1m euros is heading to Cyprus as a contingency measure to provide military personnel and their families with emergency loans.
The money will be used for British personnel and their families if cash machines and debit cards stop working.
'Against the interests of Cyprus' As the debate on Tuesday got under way, thousands of protesters had gathered outside the parliament building to voice their opposition to the plan.
The parliament speaker turned down a request from the ruling party to delay a vote.

A ruling party MP in Nicosia said party colleagues would abstain in the vote. The opposition is expected to vote against. No MPs are thought likely to back the bailout bill.

Several MPs denounced the proposed plan as "blackmail".
The plan was changed following outrage that ordinary savers would be forced to pay a levy of 6.75%. The new plan would keep that levy on deposits over 20,000 euros (£17,000), with those over 100,000 euros charged at 9.9%.
Mr Anastasiades has urged all parties to back the bailout, saying Cyprus will be bankrupt if the deal does not go ahead.
But he said earlier on Tuesday that MPs were likely to reject the levy, despite the modifications.
"They feel and they think it's unjust and that it is against the interests of Cyprus at large. But I have to admit that it was something which was not expected by the troika and by our friends, the Eurogroup."
He has called an emergency meeting of political party leaders on Wednesday morning to discuss the way forward.
EU finance ministers have warned that Cyprus's two biggest banks will collapse if the deal does not go through in some form.
The president of the Eurogroup of eurozone finance ministers, Dutch Finance Minister Jeroen Dijsselbloem, emphasised on Monday that no other eurozone country would be forced to impose such a levy.

Opposition MP Pambos Papageorgiou says any tax on savers will be rejected by parliament

The Cyprus central bank chief, Panicos Demetriades, has warned that scrapping the tax on small savers would scupper the plan to raise 5.8bn euros in total from bank deposits. He also predicted account holders could suddenly withdraw 10% or more of the total in Cypriot banks if the levy was imposed.
Fearing a run on accounts, Cyprus has shut its banks until at least Thursday. The local stock exchange also remains closed.
Cyprus' banks were badly exposed to Greece, which has itself been the recipient of two huge bailouts.

Russian anger
 
Mr Demetriades said that he favoured imposing the levy only on deposits larger than 100,000 euros, with eurozone finance ministers also suggesting such a move.
Instead, they argue that wealthier savers should pay the levy at a higher rate - losing more than 15% of their investments, correspondents say.
However, many of those larger deposits are held by Russians, and Russian leaders have already reacted angrily to the Cypriot levy - on Monday President Vladimir Putin called it "unfair, unprofessional and dangerous".

Of the estimated 68bn euros in total held in Cypriot bank accounts about 40% belongs to foreigners - most of them thought to be Russians.

The government fears a higher levy on these larger deposits would prompt many large investors to withdraw from the island and would effectively destroy its financial sector.
Russia has also said it may reconsider the terms of a 2.5bn-euro loan it made to Cyprus in 2011, which was separate from the proposed eurozone bailout.

Cypriot Finance Minister Michalis Sarris arrived in Moscow on Tuesday to see if the repayment on that loan could be delayed until 2020, and whether the interest rate could be reduced.
Officials said he would also be looking for "further investment" in his country, correspondents report, with some speculating this might mean Russian access to Cyprus' large undeveloped gas deposits.
The BBC's Mark Lowen in Nicosia says it now appears that a proxy battle of sorts is taking place over Cyprus: on the one side the EU is pushing for a lighter burden on lower savers and, on the other, Russia is angry because its wealthy nationals would be taxed hard in Cyprus.
Meanwhile, the tiny Cypriot economy's future hangs in the balance.