Cyprus delays savings tax vote

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Photo Credit: The Associated Press

NICOSIA, Cyprus — A plan to seize up to 10 percent of savings accounts in Cyprus to help pay for a €15.8 billion ($20.4 billion) financial bailout was met with fury Monday, and the government shut down banks until later this week while lawmakers wrangled over how to keep the island nation from bankruptcy.

Although the euro and stock prices of European banks fell, global financial markets largely remained calm, and there was little sense that bank account holders elsewhere across the continent faced similar risk.

Political leaders in Cyprus scrambled to devise a new plan that would not be so burdensome for people with less than €100,000 ($129,290) in the bank.

The authorities delayed a parliamentary vote on the seizure of €5.8 billion ($7.5 billion) and ordered banks to remain shut until Thursday while they try to modify the deal, which must be approved by other eurozone governments. Once a deal is in place, they will be ready to lend Cyprus €10 billion ($13 billion) in rescue loans.

A rejection of the package could see the country go bankrupt and possibly drop out of the euro currency — an outcome that would be even more damaging to financial markets’ confidence.

Even while playing down the chance of fresh market turmoil, experts warned that the surprise move broke an important taboo against making depositors pay for Europe’s bailouts.

“It’s a precedent for all European countries. Their money in every bank is not safe,” said lawyer Simos Angelides at an angry protest outside parliament in Cyprus’ capital, Nicosia, where people chanted, “Thieves, thieves!”

Eurozone finance ministers held a telephone conference Monday night, and concluded that small depositors should not be hit as hard as others. They said the Cypriot authorities will stagger the deposit seizures more, but they remained firm in demanding that the overall sum of money raised by the seizures remain the same.

In the short term, there was little sign of a new explosion in the European financial crisis. Stock markets dropped in early hours but stabilized by the close. The Dow Jones industrial average fell 62.05 points, or 0.4 percent, to 14,452.06 Monday. The euro fell 0.6 percent — a bad day, but hardly a token of impending doom.