The Cypriot parliament has thrown out a controversial plan to skim €5.8bn from savers’ bank accounts, in a move that risks plunging the eurozone into a fresh crisis and heightens expectations that the cash-strapped nation will seek a funding lifeline from Russia.
Cyprus has just 24 hours to find a solution to its funding gap before its banks are due to reopen following the dramatic no vote on Tuesday night, which failed to support a hastily renegotiated change to the original deal.
With the crisis escalating, an RAF flight carrying €1m (£850,000) in low denomination notes set off for Cyprus to provide cash for 3,000 British service personnel based on the Mediterranean island.
The banks have been shut since Friday and electronic transactions halted, although cash machines are still working and the Ministry of Defence said the euros were being flown in as “contingency measure”.
About 2,000 of the military staff, who typically serve out 18- to 24-month postings to the island, have their salaries paid into local accounts. The MoD said it was “approaching personnel to ask if they want their March, and future months’ salaries paid into UK bank accounts, rather than Cypriot accounts”.
Even before the no vote was announced, the euro had already slumped to its lowest level in four months after speculation that the Cypriot finance minister, Michalis Sarris, had resigned.
Sarris, who was in Moscow ahead of his meeting with his Russian counterpart on Wednesday, was forced to text-message Reuters to deny the quick-spreading rumours that he had quit.
There were also reports that the banking arm of the Russian energy company Gazprom might pump cash into Laiki, Cyprus’s second largest bank, which is in urgent need of a capital injection. Gazprom officials insisted this was not being planned. (more…)