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Cyprus Votes Against Bank Tax Bailout

posted 19 Mar 2013, 11:55 by Mpelembe Admin   [ updated 19 Mar 2013, 11:56 ]

Reuters Business Video Report - Anger in Cyprus and now uncertainty across the euro zone.

MPs have firmly rejected a proposed EU bailout plan.

Politicians had warned they might ahead of vote in parliament

MP Dimitris Silouris summed up the mood.

 European Party President, Dimitris Silouris

"We cannot easily accept this vicious attack from troika and especially from the Germans."

The EU had offered Cyprus 10 billion euros, but only on condition Cyprus raised another 6bln itself.

They controversially suggested Cypriot bank depositors should be taxed to raise the extra funds.

Banks were forced to close to prevent a bank run.

But the country is now facing the prospect of default and a collapsing banking industry.

CMC's Michael Hewson says Germany must now decided whether to find the extra cash or face the consequences.

CMC Markets, Michael Hewson

"We're talking essentially about 5 billion euros here -- does Germany, to avert a massive crisis, decide to pay up, or do they try and force the ECB to print more money? If the ECB prints more money, that's certainly one solution. The question is: is there the appetite there amongst German politicians to allow that to happen?"

All eyes are now on other struggling euro zone countries, as questions are raised about the EU's commitment to any further financial problems.

CMC Markets, Michael Hewson

"Once this Cyprus process has been put to bed we could get contagion to Spainand Italy, because Spanish and Italian deposit holders will be perfectly entitled to ask, if the situation deteriorates in those economies and in those banking systems, will they do the same thing to us?"

Spain's economy minister says a Cyprus euro exit is not on the table.

But this latest crisis probably will be.

The UK has already decided to fly a million euros to the island to ensure its military personnel and their families have access to cash.