Cyprus Bailout: Savings Tax Rejected By MPs

The Cypriot parliament has voted overwhelmingly against a deeply unpopular plan to tax bank deposits, putting an international bailout in jeopardy.

The 56-seat legislature buried the bill with 36 votes against and 19 abstentions. One member of parliament was not present.

The seizure of savers' deposits, in return for shares in the lenders, was meant to raise 5.8bn euros (£4.96bn), towards the country's financial rescue.

But outrage from Cypriots and the impact on international markets had already apparently pushed politicians to consider an exemption for smaller savers.

The draft bill being discussed in parliament was believed to suggest a 6.75% tax on all savings between 20,000 and 100,000 euros and 9.9% on all savings over 100,000 euros.

But even that was dismissed after the ruling party tried to delay the vote for a day before deciding not to take part.

Opposition member Pambos Papageorgiou told Sky News: "We were asked to legitimise the confiscation of savings, that has never happened anywhere in the world.

"It would have set a very dangerous precedent for the whole of Europe. Don't forget that for the whole of Europe there is a law protecting up to 100,000 euros in terms of savings."

Outside parliament, thousands of protesters gathered holding up banners reading "Hands Off Cyprus" and chanted: "It will not pass."

When the bill was rejected they cheered and sang the national anthem.

EU countries said before the vote that they would withhold 10bn euros (£8.5bn) in bailout loans unless depositors in Cyprus shared the cost of the rescue.

However, amid the backlash against the plan to hit all savers, eurozone finance ministers had pushed Nicosia to only target accounts with more than 100,000 euros.

The European Central Bank said after the vote it was still committed to providing liquidity to Cyprus' cash-strapped banks within "existing rules".

Banks have been closed since before the weekend in order to prevent a run on them and were not due to reopen until Thursday.

Nicholas Papadopoulos, the chairman of the parliamentary finance committee, said banks would now stay shut "for as long as we need to conclude an agreement".

He stressed this would be "in the next few days".

Meanwhile, a British military plane has arrived in Cyprus with one million euros onboard to ensure soldiers have access to cash during the crisis.

British soldiers stationed on the island and their families would be able to borrow from the money if cash machines and debit cards in Cyprus stop working completely, the Ministry of Defence said.

"The MoD is proactively approaching personnel to ask if they want their March, and future months' salaries paid into UK bank accounts, rather than Cypriot accounts," it said in a statement.

"We're determined to do everything we can to minimise the impact of the Cyprus banking crisis on our people."

Around 2,500 to 3,000 British military personnel are currently stationed in Cyprus.

Chancellor George Osborne has already pledged that military personnel and civil servants would be protected from the levy, telling Cabinet they would be "compensated in full" for any losses.

Earlier it was reported that Cyprus' finance minister had resigned amid the fallout from the original proposal, but Reuters said Michael Sarris had told them by text message that there was "no truth" to the story.

He has flown to Moscow to seek Russian financial assistance for the island.

President Nicos Anastasiades is due to meet party leaders on Wednesday morning in an attempt to find a way forward.