Cyprus bank-levy passage in doubt as EU shows flexibility

Cyprus's passage of an unprecedented levy on bank deposits was in doubt as euroarea finance ministers responded to criticism of the measure by loosening their stance on how the money is raised.

Cypriot President Nicos Anastasiades warned German Chancellor Angela Merkel in a call yesterday that he may not be able to win passage, said a Cypriot government official. Finance chiefs from the 17member euro area meanwhile urged Cyprus to spare smallscale savers, while maintaining their demand that 5.8 billion euros ($7.5 billion) be drawn from bank accounts in exchange for a 10 billion-euro bailout.

The Mediterranean island nation's banks and stock exchange will remain closed at least until March 21 amid speculation lawmakers may postpone the vote that's planned for later today. A handwritten sign reading "closed" hangs on display in the window of a Laiki Bank, also known as Cyprus Popular Bank Plc, in Nicosia. "I don't think about plan Bs," French Finance Minister Pierre Moscovici said in Paris today. "We're in a plan A. Everyone has to assume his responsibilities."

The Mediterranean island nation's banks and stock exchange will remain closed at least until March 21 amid speculation lawmakers may postpone the vote that's planned for later today. The raid on bank accounts sparked outrage when Cypriots woke March 16 after the marathon talks in Brussels to find bank transfers blocked. Finance ministers backtracked on the levy's structure, which initially called for a 6.75 percent tax on deposits under 100,000 euros and 9.9 percent over that amount. The levy should now be more progressive, though must yield the same amount.

"Things were confused" after the measures was announced, Moscovici said. "The perception was confused. Once this confusion was born, we had to revisit the decision."

The euro, which tumbled 0.9 percent yesterday, traded little changed today at $1.2930 as of 10:50 a.m. Frankfurt time. European stocks fell for a third day, while Spanish bond yields rose.

Merkel responded to Anastasiades's approach by telling him that he can only negotiate a rescue package with the so-called troika, which comprises the European Commission, the European Central Bank and the International Monetary Fund, according to a German government official.

The bank levy and additional tax measures reduced the overall rescue package from about 17 billion euros to meets the IMF's demand for debt sustainability and German politicians' skepticism over financial transfers. While former Cyprus central banker Athanasios Orphanides said on Bloomberg Television today that the bank tax was a "catastrophic" error, German Finance Minister Wolfgang Schaeuble said there was no option in assembling the 10 billion- euro rescue package. Bank-deposit guarantees are "only as good as a state's solvency," Schaeuble said today on Deutschland Radio.