Cyprus Rejects Rescue Plan

At WSJ, "Nation's Future in Euro Zone in Doubt After Blocking Controversial Tax on Deposits":

Cyprus's parliament rejected its government's bailout deal with the euro zone without a single vote in its favor, a move that could hasten the potential collapse of its banks and send the tiny island nation hurtling out of the euro zone.

Even the ruling party of President Nicos Anastasiades, who negotiated the agreement four days ago, declined to support it, leaving the country with few options to avert a financial-sector meltdown. The rejection was centered on the most controversial aspect of the deal—a tax on individual bank deposits—and came even after officials tried to calm objections by exempting depositors with less than €20,000 ($26,000).

Meanwhile, a government delegation led by the finance minister headed to Moscow to present a long-shot plan to ask Moscow for billions of dollars in return for stakes in the island's troubled banks and its energy assets.

Tuesday's vote came after days of fraught political talks in the Cypriot capital. Cyprus's banks are due to stay closed until at least Thursday, with some officials saying the holiday could stretch to Tuesday, March 26.

What happens next isn't clear. A senior European official said after the vote that the euro zone would continue to wait for a counterproposal from Nicosia, outlining how it would raise the €5.8 billion it needs in order to secure the €10 billion bailout it had agreed upon with the euro zone and the International Monetary Fund.

"The ball is now really in Cyprus's court," Eurogroup President Jeroen Dijsselbloem said on Dutch television after the vote, adding there would be no new money for Cyprus beyond the amount already set. "Cyprus was granted some freedom, but it will have to settle with the maximum amount of €10 billion."

Apart from negotiating the rescue deal, the government has been working on a Plan B that would involve support for its banks from Russia, a longtime friend of the country and the largest source of foreign deposits in Cyprus's banks. Cypriot officials were planning to offer Russia stakes in energy projects and banks, two officials familiar with the situation said. The Cypriot finance minister is due to meet with his Russian counterpart in Moscow on Wednesday.

In the past, Moscow has been cool to Cypriot requests for more assistance beyond Russia's current €2.5 billion bailout loan to Cyprus.

"It's anybody's guess what the developments will be from this point on," said Theodore Couloumbis, professor emeritus in international relations at the University of Athens. "My hope is that there will be a renegotiation. But it appears that a catastrophic scenario is not out of the question—and that is bankruptcy that could lead to a Cypriot exit from the euro zone."

Also at the Economist, "The bail-out of Cyprus: We'd rather not."