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Savings account seizure plan draws fury in Cyprus

NICOSIA, Cyprus — A plan to seize up to 10 percent of savings accounts in Cyprus to help pay for a 15.8 billion euro ($20.4 billion) financial bailout was met with fury Monday, and the government shut down banks until later this week while lawmakers wrangle over how to keep the island nation from bankruptcy.

Though the euro and stock prices of European banks fell, global financial markets largely remained calm, and there was little sense that bank account holders elsewhere across the continent faced similar risk.

Political leaders in Cyprus scrambled to devise a new plan that would not be so burdensome for people with less than 100,000 euros ($129,290) in the bank.

The authorities delayed a parliamentary vote on the seizure of 5.8 billion euros ($7.5 billion) until today and ordered banks to remain shut until Thursday while they try to modify the deal to make it easier on small savers. The deal must be approved by other eurozone governments, which will then be ready to lend Cyprus 10 billion euros ($13 billion) in rescue loans.

A rejection of the package could see the country go bankrupt and possibly drop out of the euro currency — an outcome that would be even more damaging to financial markets' confidence.

Eurozone finance ministers — who are known as the Eurogroup — held a telephone conference Monday night and concluded that small depositors should not be hit as hard as others.

"The Eurogroup continues to be of the view that small depositors should be treated differently from large depositors and reaffirms the importance of fully guaranteeing deposits below 100,000 (euros)," the ministers said in a statement late Monday.

They said Cypriot authorities will stagger the deposit seizures more, but they remained firm in demanding that the overall sum of money raised by the seizures remain the same.

Even while playing down the chance of fresh market turmoil, experts warned that the surprise move broke an important taboo against making depositors pay for Europe's bailouts. As a result, it may have longer-term consequences for confidence in Europe's banking system — and its ability to end its financial crisis.

"It's a precedent for all European countries. Their money in every bank is not safe," said lawyer Simos Angelides at an angry protest outside Parliament in Cyprus' capital, Nicosia, where people chanted, "Thieves! Thieves!"

In the short term, there was little sign of a new explosion in the European financial crisis. Stock markets dropped in the early hours, but stabilized by the close. The Dow Jones industrial average fell 62.05 points, or 0.4 percent, to 14,452.06 on Monday. The euro fell 0.6 percent — a bad day, but hardly a token of impending doom. Government bond prices for Italy and Spain were roughly unchanged, suggesting that investors do not expect the market trouble to spread beyond Cyprus for now.

Savings account seizure plan draws fury in Cyprus 03/18/13 [Last modified: Monday, March 18, 2013 10:00pm]
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