Markets are cagey as economists fear a renewed eurozone crisis
Cypriot President Nicos Anastasiades will on Monday attempt to persuade lawmakers to back an EU bailout deal that slaps a levy on bank savings, amid fears of a run on accounts if he fails.
Anastasiades, in an address to the shell-shocked nation on Sunday night, said that rejecting the EU demands would have seen Cyprus exit the eurozone and face bankruptcy.
"I chose the least painful option, and I bear the political cost for this, in order to limit as much as possible the consequences for the economy and for our fellow Cypriots," Anastasiades said.
Asian markets tumbled after the opening bell on Monday, dragged down by fears the events in Cyprus could reignite the eurozone debt crisis and hit confidence in other troubled countries such as Spain and Italy.
Tokyo stocks tumbled 2.10 percent in the morning session while Hong Kong shares were down 1.72 percent in early trade.
"The feeling is that the euro crisis could be back and that you could see full-on contagion, that's why you're seeing the market reaction today," Shane Oliver, chief economist at AMP Capital in Sydney, told Dow Jones Newswires.
Anastasiades vowed Sunday to continue to try to persuade the eurogroup of nations which imposed the harsh conditions to "limit the impact on small depositors.”
As a condition for a desperately-needed €10bn ($13bn) bailout for Cyprus, fellow eurozone countries and international creditors Saturday imposed a levy on all deposits in the island's banks.
Deposits of more than €100,000 will be hit with a 9.9 percent charge, while under that threshold the levy drops to 6.75 percent.
"The first choice (rejecting the EU's terms) would have led to a disorderly default as a result of the ECB (European Central Bank) cutting emergency funding to maintain liquidity in the two largest banks," Anastasiades said.
"The second choice (accepting the terms) was very difficult but controlling and managing the situation leading to economic stability of the economy."
Cyprus bank customers have voiced dismay and anger that they alone of the five eurozone member countries forced to seek bailouts so far are expected to help foot the bill.
"Many countries have economic problems more than Cyprus. Why are they doing this only in Cyprus?" lamented dentist Andreas Hadgigeorghiou.
There was also anger that the President had signed up to the levy after months of assurances that it was a red line he would never cross.
"I feel betrayed," a public sector employee who gave her name only as Elpida told AFP.
Anastasiades sought to calm bank depositors, who were seen lining up outside ATMs making whatever limited withdrawals of their savings they were allowed.
"I fully share the unhappiness caused by a difficult and painful decision. That's why I continue to fight with the eurogroup to amend their decisions in the coming hours to limit the impact on small depositors," the President said.
Anastasiades urged all political parties to ratify the terms of the EU deal when parliament meets on Monday.
Local media said he is struggling to secure even a simple majority for the terms of the bailout in the 56-member parliament in which his conservative DISY parliament holds just 20 seats.
Anastasiades needs to get the legislation ratifying the deal through parliament before banks reopen on Tuesday, after a long three-day weekend, or face a run on accounts.
But local media reported that the scale of revolt against the agreement among MPs has thrown into disarray his efforts to do so over the weekend, and he may have to declare an additional bank holiday on Tuesday.
The President was scheduled to meet his cabinet at 0930 hrs (0730 hrs GMT) on Monday before briefing lawmakers later in the morning. Parliament was expected to vote on the bailout around 1600 hrs (1400 hrs GMT).
The bank levy will hit everyone with money in Cyprus banks, from pensioners to Russian oligarchs.
Even the President of the European Parliament, Martin Schulz, expressed concern about the hit being imposed on small depositors.
"The solution must be socially acceptable," Schulz warned.
Despite the public statements of opposition, many Cypriots said they expected MPs would eventually be forced to approve the deal.
"I am not happy, but they have to sign," said Irini Makrides, who owns a shoe shop chain.