Cyprus parliament decides on bailout, thin majority to vote on euro exit

Nicosia: Cyprus’s parliament decides on Tuesday whether to back a bailout imposed by its EU partners, with approval likely from a thin majority against mounting calls for the island to exit the euro.

Lawmakers were due to meet in an extraordinary session at 4 pm to ratify the terms of the aid, which is conditional on Cyprus winding down its second-largest bank and slapping heavy losses on uninsured depositors in another.

No single party has a majority in the 56-member parliament, and the government is counting on support from members of its three party centre-right coalition which have 29 seats in total.

[caption id=“attachment_739717” align=“alignleft” width=“380”] The fallback option was to wind down one of the banks, Laiki, and impose losses of up to 60 percent in uninsured deposits in a second, Bank of Cyprus. AP[/caption]

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“The situation is extremely difficult,” said Finance Minister Harris Georgiades. Without a bailout, Cyprus would face “incomparably tougher difficulties” and a fiscal “nightmare”, he told lawmakers on Monday.

Communist AKEL, in government until it lost presidential elections in February, said it planned to vote against. It has 19 seats in parliament. The socialist Edek party, with 5 seats, said it would also reject the bill.

Attempts to agree on a bailout triggered financial chaos on the island last month, when parliament rejected an initial plan to force both insured and uninsured depositors - those holding less than 100,000 euros in savings - to pay a levy to fund the recapitalisation of two banks heavily exposed to debt-crippled Greece.

It was followed by a two-week shutdown of banks. The fallback option was to wind down one of the banks, Laiki, and impose losses of up to 60 percent in uninsured deposits in a second, Bank of Cyprus.

AKEL, which had made the initial application for financial aid in June 2012, said onerous terms offered by Cyprus’s EU partners were compelling enough for the island to seek alternative sources of funding.

“Cyprus’s only option is a solution outside the loan agreement and the Memorandum of Understanding. Seeking such a solution is possibly tantamount to a decision to exit the euro,” it said in a statement.

Reuters