Cyprus' parliament on Sunday postponed a debate and vote on a controversial levy on all bank deposits that the cash-strapped country's creditors had demanded in exchange for €10 billion ($13 billion Cdn) in rescue money.
The vote, which had been expected later Sunday, has been pushed back to Monday afternoon, parliamentary official Antonis Koutalianos said.
The announcement set off an immediate scramble among top European officials, with reports that the European Central Bank was pressuring Cypriot authorities to hold the vote without delay.
The stakes are high for the tiny island nation of one million people, because a rejection of the levy by lawmakers could push Cyprus into bankruptcy and possibly out of the common euro currency. Officials also fear a massive run Tuesday on Cypriot banks — after a national holiday on Monday — no matter which way the voting goes.
The state-run Cyprus News Agency said President Nicos Anastasiades had personally requested the postponement, but no reason was given.
The decision by Cyprus' 16 eurozone partners and the International Monetary Fund to impose a one-time tax of 6.75 percent on all deposits under €100,000 and 9.9 percent over that amount has enraged Cypriot politicians, who have condemned it as unfair and disastrous. That brings into sharp doubt its approval in the 56-seat parliament.
It marks the first time that the IMF and the 17 eurozone nations have dipped into people's savings to finance a bailout, a move that analysts worry may roil international markets and jeopardize Europe's fragile economy.
"There are two choices, voting in favor which allows the country to avoid a disorderly bankruptcy, or rejection, which will have us face a disorderly bankruptcy with all that that entails," said Averof Neophytou, deputy chief of the ruling Democratic Rally party.
It's not only Cypriot depositors who will take a hit but foreign nationals as well, including many Russians who are estimated to have some €20 billion sitting in Cypriot banks.
At their peak, Cypriot banks had assets totaling eight times the country's €17.5 billion economy. Those numbers have prompted accusations from some European countries, primarily Germany, that Cypriot banks serve as money laundries for dirty Russian cash.
"It's a lose-lose situation. There will be a huge deposit withdrawal from Cypriot banks with or without a (levy)," said Cyprus Greens lawmakers Giorgos Perdikis. "We should have the courage to make the right decisions that will restore the public's confidence which was drastically shaken."
To counterbalance their cash loss, depositors will receive Cypriot bank bonds. Neophytou said there are efforts to back up those bonds — which have little value now — with Cyprus' newfound offshore gas reserves, although extraction is still several years away.
"Now the faith in Cyprus as a place where it is convenient to keep one's money will be undermined," Anatoly Aksakov, president of the Association of Regional Banks of Russia, was quoted by the Interfax news agency as saying.
Aksakov also suggested some of the Russian money now deposited in Cypriot banks will move back to Russia.
Meanwhile, Britain's Treasury chief said the government will compensate about 3,500 U.K. troops who will lose money to Cyprus's bailout tax.
British Chancellor of the Exchequer George Osborne said Sunday the government would compensate troops and civil servants. But those among the 59,000 British residents of Cyprus who not working for the U.K. military or the government could still be out of pocket.