Cyprus rejects bailout agreement in rebuff to European Union

The Cypriot parliament overwhelmingly rejected the euro zone bailout deal yesterday evening, as the country's finance minister flew to Russia to discuss an alternative bailout plan. In a major rebuff to the European Union and IMF, 36 legislators voted against the proposal and 19 members abstained, leaving the euro zone's proposed bailout package in disarray.

President Nicos Anastasiades urged political party leaders to meet this morning to discuss a way forward. He has repeatedly warned that Cyprus faces bankruptcy if a deal is not agreed. The European Central Bank, which is providing emergency liquidity support to Cypriot banks, said it "took note" of the vote and remained "committed to provide liquidity as needed within the existing rules".

As parliament in Nicosia debated the bailout, Cypriot finance minister Michael Sarris was due to meet Russian counterpart Anton Siluanov in Russia to discuss easing the terms of a €2.5 billion Russian loan to Cyprus, and unspecified "other options" that could assist Cyprus. Cypriot finance ministry official Andreas Charalambous said Mr Sarris's top priority would be to seek a lower interest rate and longer repayment period for the €2.5 billion loan taken from Russia in 2011.

But Cypriots’ anger over the EU proposals, and powerful Russians’ fear of suffering major losses in the bailout, have fuelled speculation that Moscow would try to help prop up Nicosia and protect its own interests in the process. Russian companies and wealthy individuals are believed to have tens of billions of euro in Cypriot banks. Cypriots demonstrated peacefully but noisily outside the parliament building yesterday as the two-hour debate took place.

The outcome of the debate was expected, with Mr Anastasiades warning before the vote that MPs considered the levies “unjust and . . . against the interests of Cyprus at large.”

Several deputies accused the troika of “blackmail” by insisting on the haircut on deposits as the price of financial liquidity for the country’s stressed banks.

Meanwhile, European authorities sought to quell investor concern about the potential impact of the unravelling Cypriot deal on the rest of the euro zone.

A European Commission spokesman defended the unprecedented decision to levy depositors, despite an EU-wide guarantee for deposits up to €100,000, pointing out that the European deposit guarantee only applies in the event of a bank failure. "In this case we are not talking about such a situation, we are talking about a one-off levy which will be applied as a fiscal measure that will be applied to all bank accounts in Cyprus. It's a fiscal measure decided by the Cypriot authorities," he said.