LARNACA, Cyprus: The Cypriot government was in a race against the clock yesterday to push through a deeply unpopular levy on all deposits in the island’s banks that it agreed to in return for a ¤10bn EU bailout.
The government has to get the necessary legislation through parliament to ratify the unprecedented tax before banks reopen their doors on Tuesday after a holiday weekend on the Mediterranean island.
Right up to the 11th hour, the government had insisted the bank deposit levy was a red line it would not cross, arguing it would trigger a run on the island’s banks.
But it finally gave in in marathon 10-hour talks in Brussels on Friday night as fellow eurozone governments and international creditors made clear it was a condition of any deal.
Centre-right DIKO MP Nicolas Papadopoulos, the son of a former president, told state radio the decision was a “disaster” for the economy and the banking system, which is nearly eight times the size of the economy. “Before, I thought any decision would be bad for Cyprus but this is a nightmare,” Papadopoulos said.
He said the government should have let those banks on the island worst-hit by their exposure to toxic Greek debt — Bank of Cyprus and Popular Bank — fold, rather than put the entire economy at risk.
“I want a representative of the government to explain why this is the best solution,” he said.
Communications Minister Tassos Mitospoulos told state radio that Cyprus was caught between a rock and a hard place and the outcome was one of damage limitation.
“Our only alternative was for the banks to collapse and a disorderly default the next day,” he said.
Some ministers already gathered at the presidential palace earlier to hear details of the shock agreement, which also includes a rise in corporate tax from 10 percent to 12.5 percent, formerly another of the government’s red lines. AFP
