The parliament of Cyprus today emphatically rejected a European Union (EU) bailout plan that would have taxed private bank deposits.
The plan did not garner a single vote in support, while 36 members voted against the plan; 19 parliamentarians abstained and one was absent for the vote.
The deeply unpopular plan would take the unprecedented step of taxing the holdings within private bank accounts in Cyprus. Worried about the public outcry from raiding personal bank accounts, the Cypriot government decided to keep banks closed until at least Thursday. It announced its plans on a weekend.
Facing a negative reaction to the plan from both financial markets and the Cypriot public alike, eurozone and Cypriot authorities also worried about the possibility of a run on the banks once they reopened amid reports that ATMs on the island nation had already run dry. Even a last-minute modification to the plan, which would have exempted bank accounts with a balance of less than €20,000 was not enough for the bailout package to gain the necessary support in the Cypriot parliament.
It is a good thing that the proposal was rejected by Cypriot lawmakers. The proposed plan, as Luke Coffey explains, would have far-reaching consequences:
The eurozone crisis has revealed deep cracks in the whole European Project. The hubris of those wanting to establish a European super-state at whatever cost hide behind the Brussels bureaucracy while the average European suffers. If the EU backs these draconian economic measures in Cyprus, there will be nothing stopping them from supporting similar acts in other ailing eurozone economies—countries like Ireland, Italy, Portugal, and Spain should consider this a warning.
That such a drastic step as taxing private bank holdings was even considered is yet further evidence of how detached, arrogant, and unaccountable eurozone officials in Brussels have become. That the plan could not be saved through last-minute inclusion of an exemption for small depositors attests to the depth of anger and disbelief over the bailout plan among everyday Cypriots.
Now that the parliament has rejected the plan, eurozone officials are likely to ask Cypriot officials to think up an alternative way to raise revenues to augment the eurozone’s contributions to the bailout. While this chapter of the Cypriot bailout has ended, the saga of the eurozone crisis rumbles on.