Cyprus government considers capital restrictions if banks reopen in wake of no vote on bailout plan

Move would attempt to stop money flowing out of the country

Brussels, Nicosia

The Cypriot government is considering whether to allow banks to reopen tomorrow and could impose capital restrictions if they do, according to a senior government official.

"At the moment the issue is if and how banks will reopen tomorrow. Capital restrictions being considered," the anonymous official said in a text message to Reuters.

The move would attempt to address concerns that money could flood out of the country when banks do finally repoen.

Cyprus stood on the brink of bankruptcy this morning after its parliamentarians voted down a bailout deal that would have taxed ordinary savers yesterday. The decision sets up a showdown with its European creditors who are insisting that the island contribute to its rescue package or risk going bust.

The Cyprus government and central bank were said to be working on an alternative proposal to come up with billions of euros in funds to stave off bankruptcy.

Government spokesman Christos Stylianides said a meeting was underway at the central bank to discuss a 'Plan B' for raising funds, but also for reducing the €5.8 billion (£5 billion) that must be found domestically.

In order to qualify for €10bn promised by the International Monetary Fund (IMF), the European Central Bank (ECB) and eurozone finance ministers, Cyprus had to approve yesterday's plan.

President Nicos Anastasiades had warned that a “no” vote could lead to financial chaos and an eventual exit from the single currency.

Officials say it is just a matter of weeks before the government runs out of money, leaving it unable to cover civil servants' salaries or welfare payments. Underlining the sense of panic, the British Government announced that it was sending a Royal Air Force plane loaded with €1m to provide emergency loans to British troops, as banks on the island remained closed and cash machines ran out of money.

Just hours before parliament met to debate the measures, President Anastasiades had put forward new proposals in an effort to win over MPs.

The new plan would have seen anyone  with less than €20,000 in the bank exempt from the tax. The move was a departure from the agreement reached in Brussels over the weekend, which stipulated that all deposits would be charged. Those with between €20,000 and €100,000 would have lost 6.75 per cent of their savings, while  those with over €100,000 would have faced a 9.9 per cent tax. But even this amendment was not enough to convince lawmakers, 36 of whom voted against the measures, with the other 19 abstaining.

Cyprus needs as much as €17bn to pull back from the brink after its bloated financial sector was hard hit by the crisis in Greece. The troika of the IMF, the ECB and the EU have pledged €10bn in assistance, but only if the Cypriots come up with €5.8bn themselves. They have also threatened to withdraw ECB emergency funding from two stricken banks. This funding is key to Cyprus's immediate future. If it disappears, the island's two largest banks will go bust, triggering a fresh crisis that could force Cyprus out of the euro. Tonight the ECB pledged to continue providing funding “within the rules”, but given its earlier threats the statement was met with scepticism in financial circles.

The Cypriot government is now faced with a tough choice - return to the troika and try and renegotiate the terms of the bailout, or attempt to find other sources of finance, possibly from Russia. Zsolt Darvas, a research fellow at the Brussels-based Bruegel think tank, said they were unlikely to find a sympathetic ear among the eurozone finance ministers. “I think the eurogroup would be extremely tough,” he said. The Cypriots' position is not helped by concern that when the banks reopen - which is due to happen tomorrow - money could flood out of the country.

EU officials claim Russia is unlikely to provide anything near the level of assistance Cyprus needs. President Anastasiades has also been unwilling to contemplate a higher tax on deposits over €500,000, fearing a flight of large foreign investors from the country.

The Cypriot speaker, Yiannakis Omirou, said that political leaders would meet President Anastasiades today to discuss the next steps, but lawmakers stressed that they wanted any tax on savings removed from the deal .“It has not been (implemented) in any other country in Europe and we don't wish to be [an] experiment,” said Nicholas Papadopoulos, the chairman of the parliamentary finance committee.

In a statement on Monday, eurozone finance ministers said they were willing to tweak the deal to lessen the burden on small savers, but that Cyprus's contribution had to remain at €5.8bn. The new proposals put forward this morning did not reach that figure.

In the bank: Anastasiades assets

When the Cypriot parliament rejected a one-off tax on savings held in its banks, President Nicos Anastasiades may well have breathed a sigh of relief.

The president has said that the tax is necessary to avoid the eventual collapse of Cyprus’s financial system, but with personal assets reportedly in the millions of euros, Anastasiades is among those who would have been hit by the levy.

According to his 2011 earnings –declared in January – his combined wealth adds up to over €2.3m (£2m).

An audit by KPMG found the president owned property worth €835,000, shares in private companies worth €10,497 and a collection of cars valued at over €115,000.

Perhaps most importantly though for Cypriots fearing a raid on their savings, Anastasiades has bank deposits of €706,527. That would mean a total of €70,652 would have been appropriated from his account if the parliament had passed the controversial law.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive + incentives + uncapped comms: SThree:...

Ashdown Group: Reporting & Analytics Supervisor - Buckinghamshire - £36,000

£34000 - £36000 per annum + benefits: Ashdown Group: Analytics & Reporting Tea...

Recruitment Genius: Junior Web Developer

£16000 - £20000 per annum: Recruitment Genius: This company is a world leader ...

Recruitment Genius: Telesales Executive - OTE £25,000

£13000 - £25000 per annum: Recruitment Genius: Would you like to be part of a ...

Day In a Page

The Silk Roads that trace civilisation: Long before the West rose to power, Asian pathways were connecting peoples and places

The Silk Roads that trace civilisation

Long before the West rose to power, Asian pathways were connecting peoples and places
House of Lords: Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled

The honours that shame Britain

Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled
When it comes to street harassment, we need to talk about race

'When it comes to street harassment, we need to talk about race'

Why are black men living the stereotypes and why are we letting them get away with it?
International Tap Festival: Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic

International Tap Festival comes to the UK

Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic
War with Isis: Is Turkey's buffer zone in Syria a matter of self-defence – or just anti-Kurd?

Turkey's buffer zone in Syria: self-defence – or just anti-Kurd?

Ankara accused of exacerbating racial division by allowing Turkmen minority to cross the border
Doris Lessing: Acclaimed novelist was kept under MI5 observation for 18 years, newly released papers show

'A subversive brothel keeper and Communist'

Acclaimed novelist Doris Lessing was kept under MI5 observation for 18 years, newly released papers show
Big Blue Live: BBC's Springwatch offshoot swaps back gardens for California's Monterey Bay

BBC heads to the Californian coast

The Big Blue Live crew is preparing for the first of three episodes on Sunday night, filming from boats, planes and an aquarium studio
Austin Bidwell: The Victorian fraudster who shook the Bank of England with the most daring forgery the world had known

Victorian fraudster who shook the Bank of England

Conman Austin Bidwell. was a heartless cad who carried out the most daring forgery the world had known
Car hacking scandal: Security designed to stop thieves hot-wiring almost every modern motor has been cracked

Car hacking scandal

Security designed to stop thieves hot-wiring almost every modern motor has been cracked
10 best placemats

Take your seat: 10 best placemats

Protect your table and dine in style with a bold new accessory
Ashes 2015: Alastair Cook not the only one to be caught in The Oval mindwarp

Cook not the only one to be caught in The Oval mindwarp

Aussie skipper Michael Clarke was lured into believing that what we witnessed at Edgbaston and Trent Bridge would continue in London, says Kevin Garside
Can Rafael Benitez get the best out of Gareth Bale at Real Madrid?

Can Benitez get the best out of Bale?

Back at the club he watched as a boy, the pressure is on Benitez to find a winning blend from Real's multiple talents. As La Liga begins, Pete Jenson asks if it will be enough to stop Barcelona
Athletics World Championships 2015: Beijing witnesses new stage in the Jessica Ennis-Hill and Katarina Johnson-Thompson heptathlon rivalry

Beijing witnesses new stage in the Jess and Kat rivalry

The last time the two British heptathletes competed, Ennis-Hill was on the way to Olympic gold and Johnson-Thompson was just a promising teenager. But a lot has happened in the following three years
Jeremy Corbyn: Joining a shrewd operator desperate for power as he visits the North East

Jeremy Corbyn interview: A shrewd operator desperate for power

His radical anti-austerity agenda has caught the imagination of the left and politically disaffected and set a staid Labour leadership election alight
Isis executes Palmyra antiquities chief: Defender of ancient city's past was killed for protecting its future

Isis executes Palmyra antiquities chief

Robert Fisk on the defender of the ancient city's past who was killed for protecting its future