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Cypriot levy rejected, European leaders weigh in

FXstreet.com (Barcelona) - Cyprus’s parliament rejected an unprecedented levy on bank deposits, rendering a blow to European plans of coercing depositors to shoulder part of the country’s rescue in a standoff that risks renewed tumult in the euro area.

Cypriot legislators in Nicosia voted 36 against to none in favor of the proposal in a show of hands today along with 19 abstentions – hammered out by euro-area finance leaders over the weekend, the deal had sought to raise €5.8B by drawing funds from Cyprus bank accounts in return for €10.0B in international aid. Stocks dropped and the euro fell to a three-month low against the dollar at the prospect of impasse in Cyprus. European officials including Dutch Finance Minister Jeroen Dijsselbloem had said that Cyprus must contribute to its own bailout, while stressing that the Cypriot situation is unique. German coalition lawmakers said that Cyprus can expect no aid without meeting the terms.

“Cyprus has rebuffed the outstretched hand” of its partners, Hans Michelbach, a German lawmaker from Chancellor Angela Merkel’s Christian Democratic bloc and the ranking member on parliament’s finance committee, noted in a statement. The vote is “an act of collective unreason” and “the people of Cyprus must now pay a high price.”

The ECB said it “takes note of the decision of the Cypriot Parliament and is in contact with its Troika partners” from the International Monetary Fund and the European Commission, according to a statement. “The ECB reaffirms its commitment to provide liquidity as needed within the existing rules.”

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