Cypriot President Nicos Anastasiades, who just took office last month, announced recently that he agreed to terms set by the E.U. and International Monetary Fund for a bailout that would keep the country from going bankrupt.
The $12.9 billion bailout, in which depositors in Cypriot banks will take losses, will include a 9.9 percent one-time tax that will apply to all deposits of more than $129,000, while a 6.7 percent levy will be applied to deposits of less than that amount. Both taxes will take effect on Tuesday, RTE News reports.
Anastasiades said that a refusal to the terms of the agreement would have contributed to the collapse of the nation’s two largest banks and, ultimately, Cyprus’ bankruptcy.
“We would either choose the catastrophic scenario of disorderly bankruptcy or the scenario of a painful but controlled management of the crisis,” Anastasiades said, according to RTE News.
Additionally, as part of the deal, Cyprus is required to shrink its deficit, cut back its banking sector, increase taxes and privatize certain state-owned assets.
The bailout has created public backlash among thousands of Cypriots, who rushed to withdraw cash from ATMs, leaving many out-of-service by mid-day. Credit co-ops, which are normally open for business on Saturdays, closed to prevent a run on deposits.
Cyprus’ parliament was scheduled to vote on the plan on Tuesday, but a lack of support among lawmakers could delay the vote until as late as Friday, according to The New York Times.
Cyprus is the fifth country to receive a bailout from euro-zone authorities, following that of Greece, Ireland, Portugal and Spain. Without a bailout, Cyprus would default on $38.8 billion of financial obligations, which could reduce investor confidence and cause the country to plunge into economic ruin.
Russian President Vladimir Putin criticized the levy on deposits, saying that the taxes were “unfair, unprofessional and dangerous.” Russian investors hold a 37 percent stake in the $89.4 billion in the Cypriot banking system, RTE News reports.