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Lawmakers in Cyprus reject bailout bill

Government must find new way to raise cash

Protesters outside parliament in Nicosia, Cyprus, on Tuesday demonstrated against bailout legislation that would allow bank deposits to be taxed to pay for the bailout.

Hasan Mroue/AFP/Getty Images

Protesters outside parliament in Nicosia, Cyprus, on Tuesday demonstrated against bailout legislation that would allow bank deposits to be taxed to pay for the bailout.

NICOSIA, Cyprus — Cypriot lawmakers on Tuesday rejected a critical draft bill that would have seized part of people’s bank deposits in order to qualify for an international bailout, with not a single vote in favor.

The rejection leaves Cyprus’s bailout in question. Without external funds, the country’s banks face collapse and the government could go bankrupt. Nicosia will now have to come up with an alternative plan to raise the money: The government could try to offer a compromise bill that would be more palatable to lawmakers.

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The bill, which had been amended Tuesday morning to shield small deposit holders from the deposit tax, was rejected with 36 votes against and 19 abstentions. One deputy was absent.

‘‘No to new colonial bonds, no to subjugation, no to national dishonor and raw blackmail,’’ house speaker Yiannakis Omirou said.

After the vote failed, he said political leaders will have a meeting with the president on Wednesday to discuss the next steps.

Nicholas Papadopoulos, the chairman of the parliamentary finance committee, said banks would remain closed ‘‘for as long as we need to conclude an agreement’’ but stressed this would be ‘‘in the next few days.’’ Banks had been ordered to remain shut until Thursday while the bill was debated and amended, to prevent a bank run.

Papadopoulos said Cyprus wants a renegotiation of its bailout deal.

But the idea of seizing savings was something Cyprus rejected. ‘‘It has not been [implemented] in any other country in Europe and we don’t wish to be the experiment of Europe.’’

Hundreds of protesters outside Parliament cheered and sang the national anthem when they heard the bill failed.

Under the original deal reached in Brussels late Friday to qualify for the 10 billion ­euro, or about $12 billion, bailout from other eurozone countries and the International Monetary Fund, Cyprus had to raise about $7.47 billion in additional funds by taxing all bank accounts. Those under 100,000 euros, or about $129,000, would pay 6.75 percent, and those above that amount would be taxed at 9.9 percent on their deposits.

Facing fury at home and from Russians who hold an estimated third of the total amount in Cypriot banks, the government amended the bill Tuesday to exempt small depositors with up to 20,000 euros in the bank, or about $25,800.

But the change was not enough for lawmakers.

The country’s central bank governor, Panicos Demetriades, had recommended that no accounts be taxed below 100,000 euros — the amount that is supposed to be insured by the state if a bank collapses.

‘‘The credibility of, and trust in the banking sector depends on this,’’ said Demetriades.

Although Cyprus is the smallest eurozone country to be bailed out, the details of the plan had sent shockwaves through the eurozone as it was the first time savers’ bank ­accounts have been directly targeted. Other bailed-out countries such as Greece, Ireland, and Portugal have raised funds by imposing new taxes.

Proponents of the deposit seizure argued it would have made foreigners who have taken advantage of Cyprus’s low-tax regime share the cost of the bailout of the banks, which have been hit hard by their overexposure to bad Greek debt.

Finance Minister Michalis Sarris flew to Moscow Tuesday to meet with his Russian counterpart, arriving there shortly before the vote.

Andreas Charalambous, a senior official at the ministry, said the aim is to extend repayment of a $3.2 billion loan Russia granted Cyprus in late 2011 when it could no longer borrow from international markets.

He said Cyprus was also looking for ‘‘potential interest for further investment in the country.’’

Opponents say a blanket charge on people’s bank accounts will hurt ordinary Cypriots more, and could shake confidence in the banking sector. And by going after deposits, European policy makers have set a precedent that could be repeated in the future.

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