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Cyprus rejects EU bailout plan and turns to Russia, ECB offers more time to negotiate

Cypriots celebrated in the streets Tuesday night after their government overwhelmingly rejected the European Unions draconian bank deposit levy, leaving the planned £8.5 billion bail-out in chaos.

Thirty-six lawmakers voted against the deal whilst nineteen abstained, including those belonging to President Nikos Anastasiades’ party. The move is a big blow to the EU who after imposing its will upon other struggling member states was finally met with defiance and resounding no.

In another act of defiance the Cypriot finance minister ignored warnings from the German chancellor Angela Merkel to not enter into negotiations with Russia. Michael Sarris flew to Moscow anyway.

“The chancellor once again emphasised that the negotiations are to be conducted only with the troika (the European Union, European Central Bank and the International Monetary Fund),” said her spokesman.

Such open rebellion against the EU’s leading nation has raised fears that the small island nation could be preparing to turn to Russia for aid, a move that could lead to the small nation leaving the Union and raising the spectre of Eurozone disintegration.

Yiannakis Omirou, the speaker of the Cypriot Parliament ahead of the vote described the Eurozone plan as ‘blackmail’ saying; “There can only be one answer: no to blackmail, this decision is no more than a raid on bank funds. Our demand must be that this deal must be renegotiated. If we pass this tax there will be no foreign investor who will keep their money here.”

Marios Karoyian the leader of Diko, a social democrat party, in the country’s ruling coalition, earlier implored MPs to reject the measure: “Our country is under unjust and premeditated attack,” he said. “We want a European rescue, not European destruction.”

Once the votes result was announced thousands of protestors chanted ‘Cyprus belongs to its people’.

“We told the German where to go; this was for everybody- not just us. We support the Russians, but we also did it for Spain, for Italy, for the Portuguese, for whoever they come after next for money. We have saved them” said protestor Costas Georgiou a food and drinks manager.

As well as negotiating with the Russians the Church of Cyprus has pledged to put its entire wealth up in support of the country’s economy. Its vast property portfolio would be used to buy government bonds that could provide a significant boost to the struggling islands funds.

Today the Cypriot government is holding crisis talks in an attempt to come up with a plan B in case negotiations with the Russians and EU fail. In order to prevent an expected bank run the nation’s banks and stock exchange remain closed with Germany warning that the islands banks may never reopen if a bailout is not agreed.

The European Central Bank has responded to the situation by announcing that it will give Cyprus more time to renegotiate a bailout package with the troika.

“The ECB statement that they are going to provide more liquidity means there is some time for renegotiation for Cyprus, so that’s a positive,” said Lutz Karpowitz, a senior foreign- exchange strategist at Commerzbank AG in Frankfurt. “As long as there is still some room for further negotiations, the market is relatively relaxed. If there is more and more impression that there won’t be a solution, then there may be more weakness in the euro.”

As a result the Euro has strengthened for the first time in three days against the US Dollar and snapped a seven-day decline against the Swiss Franc. The currency however will remain highly volatile as the situation progresses.

As of 10:20 am

The Euro to Pound Sterling exchange rate is currently trading in the region of 0.8528

The Euro to US Dollar exchange rate is currently trading in the region of 1.2916

The Euro to Australian Dollar exchange rate is currently trading in the region of 1.2436

The Euro to New Zealand Dollar exchange rate is currently trading in the region of 1.5702