Cyprus risks euro zone exit

  • The European Union has given Cyprus until Monday to raise the funds required to secure an international bailout.

    If a solution is not found, the Mediterranean island nation could face a collapse of its financial system that could push it out of the euro currency zone.

    Parliament is due to reconvene today after lawmakers adjourned Thursday’s session, which saw Cypriot President Nicos Anastasiades propose a "Plan B" for funding the controversial bailout.

    Politicians have been left scrambling to find an alternative way forward after a bank levy was rejected by parliament on Tuesday.

    The levy was a condition of a $13 billion bailout offered by the European Union and the International Monetary Fund.

    Cyprus was expected to raise $7.5 billion through the one-off tax on savings.

    Under the levy that was rejected by parliament, EU lenders wanted uninsured bank depositors to bear some of the cost.

    The original proposal saw people with less than $128,750 in their accounts stand to pay a one-time tax of 6.75 percent while those with larger amounts would lose 9.9 percent.

    Parliamentarians on Tuesday dismissed the altered plan to exempt savers with less than $25,750 from the charges while those with over $128,750 would still be charged at 9.9 percent. Depositors in between the two spectrums would pay 6.75 percent.

    The European Central Bank has stated it will cut off liquidity to Cypriot banks if a deal is not reached, with a senior EU official telling Reuters news agency that the bloc was ready for a euro exit in order to contain damage to the wider European economy.

    Cyprus’ banks were badly exposed to Greece, which itself has been the recipient of two large bailouts.

    Explore the geographical locations of Cyprus through Cyprus Map