Political leaders in Cyprus were holding emergency talks this morning to try to avert the collapse of the county’s banking system after lawmakers overwhelmingly rejected a £8.7billion European bailout deal last night.
The vote to reject the raid on savers’ bank deposits was expected despite government attempts to soften the blow by exempting savers with deposits of less than €20,000 (£17,000) from the one-off levy.
Under the original deal reached in Brussels late on Friday, to qualify for the €10 billion (£8.5 billion) bailout from other eurozone countries and the International Monetary Fund (IMF), Cyprus had to raise €5.8 billion (£5 billion) in additional funds by taxing all bank accounts.
The original bill had demanded that savers with accounts on the island – including British expats, mainly pensioners and Army servicemen – hand over 9.9 per cent of all deposits over €100,000 and 6.75 per cent on smaller amounts.
But even the revised bill received no support, with 36 votes against and 19 abstentions in the 56 member parliament.
Protesters outside the parliament in Nicosia celebrated and sang the national anthem after hearing the news.
The continuing crisis in the Mediterranean island prompted the British government to airlift €1million (£852,600) late yesterday in what the Ministry of Defence (MOD) called a contingency measure to help troops based there with their families.
The MoD stressed it was determined to minimise the impact of the Cyprus banking crisis on “our people” and it will consider further shipments if required.
As well as sending out the emergency fund, the MoD asked personnel if they would prefer this and future months’ salaries to be paid into UK bank accounts.
It said in a statement yesterday: ‘An RAF flight left for Cyprus this afternoon with one million euro on board as a contingency measure to provide military personnel and their families with emergency loans in the event that cash machines and debit cards stop working completely.
‘We will keep this under review and consider further shipments if required.’
The prospect of run on the banks in the Cyprus increased the likelihood they would remain closed until next week, as Central Bank of Cyprus governor, Anthanasios Orphanides, accused European governments of ‘blackmail’.
Germany warned last night Cypriot banks may never reopen if the bailout deal is not agreed.
Cypriot President Nicos Anastasiades is holding the emergency meeting of party leaders and the Mr Orphanides in Nicosia to ‘examine alternative plans to address the situation that may arise following… the parliamentary vote’, his office said.
He will also hold a cabinet meeting and talks with the European Union, European Central Bank and IMF.
The ailing health of banks across Europe was further laid bare yesterday with lenders facing a £180billion black hole in their finances.
In its regular health check, the influential Bank of International Settlements revealed banks had made major headway in bolstering their capital cushions to protect themselves against future shocks.
But despite slashing their capital shortfall by 45.8 per cent between December 2011 and June last year, the 210 banks analysed were still faced with a total gap in their balance sheets of £180billion.
This is the amount they will have to raise to comply with tougher Europe-wide Basel III regulations which come into force in 2019.
Although the report did not identify any banks, it is thought that many with the most parlous finances are in troubled eurozone countries, including Spain and Italy.