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Mar 19, 8:21 AM EDT

CYPRUS SEEKS TO ALLEVIATE PAIN FROM DEPOSIT RAID

BY MENELAOS HADJICOSTIS AND ELENA BECATOROS ASSOCIATED PRESS

NICOSIA, Cyprus (AP) -- Cypriot government ocials sought Tuesday to alleviate the pain on small savers from a plan to raid bank deposits that has caused outrage in the country and sent jiers through European nancial markets. Just hours ahead of an expected vote in the countrys 56-member Parliament on the seizure of a percentage of AP Photo/Petros Karadjias deposits, ocials sought to limit the impact on small savers. They even hinted that the country was looking to limit the BUSINESS VIDEO amount it is to raise from the measures imposition - a move that could cover any shortfall from freeing smaller deposits from the charge.

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A new draft bill discussed in Parliaments nance commiee proposed to spare all deposits below (EURO)20,000 ($25,900) from a levy. Those between (EURO)20,000 and (EURO)100,000 ($129,290) would still have a 6.75 percent charge imposed, and those above (EURO)100,000 would be hit for 9.9 percent, in line with the original plan put forward at the weekend. A vote in favor of the bank account conscation is needed if Cyprus is to get (EURO)10 billion in rescue loans from its euro partners and the International Monetary Fund. The seizure of deposits is meant to raise (EURO)5.8 billion, which is part of the countrys rescue. If the vote fails to get through Parliament, Cyprus faces potential bankruptcy and a possible from the euro, which could reignite concerns in nancial markets over the future of the single currency. Although Cyprus is the smallest eurozone country to be bailed out, the details of the plan sent shockwaves through the single currency area as it was the rst time European authorities have targeted peoples bank accounts. Other bailed out countries such as Greece, Ireland and Portugal have raised funds through imposing new taxes. Proponents of the Cypriot account levy argue that this way gets foreigners who have taken advantage of Cypruss low-tax regime to share the cost of the bailout of the countrys banks, which have been hit hard by their over-exposure to bad Greek debt. About a third of all deposits in Cypriot banks are believed to be held by Russians. As lawmakers wrangled, Finance Minister Michalis Sarris was to y to Moscow Tuesday afternoon to meet with his Russian counterpart.

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CYPRUS SEEKS TO ALLEVIATE PAIN FROM DEPOSIT RAID A LOOK AT CYPRUS' MOVE TO SEIZE BANK DEPOSITS RUSSIAN MONEY IN CYPRUS HIT BY SAVINGS SEIZURE SPOKESMAN: PUTIN SAYS CYPRUS PLAN UNJUST UK: WE WILL COMPENSATE TROOPS HIT BY CYPRUS LEVY

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Opponents point out that a blanket charge on peoples bank accounts will hurt ordinary Cypriots more, and could shake the condence of all in the countrys banking sector. And by going after deposits, European policymakers have set a precedent that could be repeated in the future. The worry of bank runs across Europe lies at the heart of the concerns in markets at the moment. In a sign of the scale of disagreement over the deposit charge, the countrys central bank governor, Panicos Demetriades, recommended that no accounts below (EURO)100,000 be touched. That level represents the amount of savings that are supposed to be insured if a bank collapses. We believe that deposits up to (EURO)100,000 should not be levied, said Demetriades. The credibility of and trust in the banking sector depends on this. Banks have been shut until Thursday to prevent a bank run. Demetriades said he expects at least 10 percent of deposits to be withdrawn when the banks re-open. We expect outows, but the European Central Bank has assured us that it will provide adequate liquidity to the banks because it will consider them viable, he said. Eurozone nance ministers held a telephone conference Monday night, and concluded that small depositors should not be hit as hard as others. They said the Cypriot authorities should stagger the deposit seizures more, but insisted that the overall take should stay the same. The new Cypriot proposal, if approved, would raise less funds than the (EURO)5.8 demanded. It was unclear how the shortfall might be made up. However, Cyprus President Nicos Anastasiades told German Chancellor Angela Merkel in a telephone conversation Monday night that the possibility of reducing the requirements from self-raised funds is being explored, government spokesman Christos Stylianides said Tuesday.

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The two leaders were expected to speak again on Tuesday, Stylianides said. Cypruss central bank governor noted that the ECB believes we have to try to protect guaranteed deposits.

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Demetriades stressed the importance of the bill being voted on and passing in Parliament. Its important for the future of the banking sector and the economy that this bill is passed, he said in the commiee meeting, adding that we believe that once trust is restored, deposits will return. Christine Lagarde, the head of the International Monetary Fund which is participating in Cypruss bailout, said in Frankfurt that the IMF was extremely supportive of the Cypriot authorities intentions to introduce more progressive rates in the one-o tax. 2013 THE ASSOCIATED PRESS. ALL RIGHTS RESERVED. THIS MATERIAL MAY NOT BE PUBLISHED, BROADCAST, REWRITTEN OR REDISTRIBUTED. Learn more about our PRIVACY POLICY and TERMS OF USE.

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