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Cyprus in Limbo After Rejecting Bank Deposit Seizure Plan

  • Protesters chant slogans outside the Cypriot parliament against a crucial parliamentary vote on a plan to seize a part of depositors' bank savings, in central Nicosia, Tuesday, March 19, 2013. The Cypriot government sought Tuesday to shield small savers from a plan that is intended to raise 5.8 billion euro ($7.5 billion) toward a financial bailout by seizing money from bank accounts. The plan, which is part of a larger bailout package being negotiated with other European countries, has been met with fury in Cyprus and has sent jitters across financial markets. (AP Photo/Petros Giannakouris)

    Protesters chant slogans outside the Cypriot parliament against a crucial parliamentary vote on a plan to seize a part of depositors' bank savings, in central Nicosia, Tuesday, March 19, 2013. The Cypriot government sought Tuesday to shield small savers from a plan that is intended to raise 5.8 billion euro ($7.5 billion) toward a financial bailout by seizing money from bank accounts. The plan, which is part of a larger bailout package being negotiated with other European countries, has been met with fury in Cyprus and has sent jitters across financial markets. (AP Photo/Petros Giannakouris)

  • Protester stand in front of a banner which reads "Cyprus Says No" during a crucial parliamentary vote on a plan to seize a part of depositors' bank savings, in central Nicosia, Tuesday, March 19, 2013. The Cypriot government sought Tuesday to shield small savers from a plan that is intended to raise euro 5.8 billion ($7.5 billion) toward a financial bailout by seizing money from bank accounts. The plan, which is part of a larger bailout package being negotiated with other European countries, has been met with fury in Cyprus and has sent jitters across financial markets. (AP Photo/Petros Giannakouris)

    Protester stand in front of a banner which reads "Cyprus Says No" during a crucial parliamentary vote on a plan to seize a part of depositors' bank savings, in central Nicosia, Tuesday, March 19, 2013. The Cypriot government sought Tuesday to shield small savers from a plan that is intended to raise euro 5.8 billion ($7.5 billion) toward a financial bailout by seizing money from bank accounts. The plan, which is part of a larger bailout package being negotiated with other European countries, has been met with fury in Cyprus and has sent jitters across financial markets. (AP Photo/Petros Giannakouris)

  • A protester hold a placard depicting German Chancellor Angela Merkel outside the parliament in Nicosia during a crucial parliamentary vote on a plan to seize a part of depositors' bank savings, in central Nicosia, Tuesday, March 19, 2013. The Cypriot government sought Tuesday to shield small savers from a plan that is intended to raise euro 5.8 billion ($7.5 billion) toward a financial bailout by seizing money from bank accounts. The plan, which is part of a larger bailout package being negotiated with other European countries, has been met with fury in Cyprus and has sent jitters across financial markets. (AP Photo/Petros Giannakouris)

    A protester hold a placard depicting German Chancellor Angela Merkel outside the parliament in Nicosia during a crucial parliamentary vote on a plan to seize a part of depositors' bank savings, in central Nicosia, Tuesday, March 19, 2013. The Cypriot government sought Tuesday to shield small savers from a plan that is intended to raise euro 5.8 billion ($7.5 billion) toward a financial bailout by seizing money from bank accounts. The plan, which is part of a larger bailout package being negotiated with other European countries, has been met with fury in Cyprus and has sent jitters across financial markets. (AP Photo/Petros Giannakouris)

  • Cyprus' Finance Minister Michalis Saris speaks as he arrives at Sheremetyevo airport in Moscow, Russia, Tuesday, March 19, 2013. Saris will meet with his Russian counterpart tomorrow. (AP Photo/Misha Japaridze)

    Cyprus' Finance Minister Michalis Saris speaks as he arrives at Sheremetyevo airport in Moscow, Russia, Tuesday, March 19, 2013. Saris will meet with his Russian counterpart tomorrow. (AP Photo/Misha Japaridze)

  • Cypriot university students hold a banner reads ''Resistance'' during a rally, against a plan to seize a part of depositors' bank savings, outside Cyprus' Consulate in the northern Greek port city of Thessaloniki, Tuesday, March 19, 2013. The Cypriot government sought Tuesday to shield small savers from a plan that is intended to raise euro 5.8 billion ($7.5 billion) toward a financial bailout by seizing money from bank accounts. The plan, which is part of a larger bailout package being negotiated with other European countries, has been met with fury in Cyprus and has sent jitters across financial markets. (AP Photo/Nikolas Giakoumidis)

    Cypriot university students hold a banner reads ''Resistance'' during a rally, against a plan to seize a part of depositors' bank savings, outside Cyprus' Consulate in the northern Greek port city of Thessaloniki, Tuesday, March 19, 2013. The Cypriot government sought Tuesday to shield small savers from a plan that is intended to raise euro 5.8 billion ($7.5 billion) toward a financial bailout by seizing money from bank accounts. The plan, which is part of a larger bailout package being negotiated with other European countries, has been met with fury in Cyprus and has sent jitters across financial markets. (AP Photo/Nikolas Giakoumidis)

  • Protesters chant slogans outside the Cypriot parliament against a crucial parliamentary vote on a plan to seize a part of depositors' bank savings, in central Nicosia, Tuesday, March 19, 2013. The Cypriot government sought Tuesday to shield small savers from a plan that is intended to raise 5.8 billion euro ($7.5 billion) toward a financial bailout by seizing money from bank accounts. The plan, which is part of a larger bailout package being negotiated with other European countries, has been met with fury in Cyprus and has sent jitters across financial markets. (AP Photo/Petros Giannakouris)
  • Protester stand in front of a banner which reads "Cyprus Says No" during a crucial parliamentary vote on a plan to seize a part of depositors' bank savings, in central Nicosia, Tuesday, March 19, 2013. The Cypriot government sought Tuesday to shield small savers from a plan that is intended to raise euro 5.8 billion ($7.5 billion) toward a financial bailout by seizing money from bank accounts. The plan, which is part of a larger bailout package being negotiated with other European countries, has been met with fury in Cyprus and has sent jitters across financial markets. (AP Photo/Petros Giannakouris)
  • A protester hold a placard depicting German Chancellor Angela Merkel outside the parliament in Nicosia during a crucial parliamentary vote on a plan to seize a part of depositors' bank savings, in central Nicosia, Tuesday, March 19, 2013. The Cypriot government sought Tuesday to shield small savers from a plan that is intended to raise euro 5.8 billion ($7.5 billion) toward a financial bailout by seizing money from bank accounts. The plan, which is part of a larger bailout package being negotiated with other European countries, has been met with fury in Cyprus and has sent jitters across financial markets. (AP Photo/Petros Giannakouris)
  • Cyprus' Finance Minister Michalis Saris speaks as he arrives at Sheremetyevo airport in Moscow, Russia, Tuesday, March 19, 2013. Saris will meet with his Russian counterpart tomorrow. (AP Photo/Misha Japaridze)
  • Cypriot university students hold a banner reads ''Resistance'' during a rally, against a plan to seize a part of depositors' bank savings, outside Cyprus' Consulate in the northern Greek port city of Thessaloniki, Tuesday, March 19, 2013. The Cypriot government sought Tuesday to shield small savers from a plan that is intended to raise euro 5.8 billion ($7.5 billion) toward a financial bailout by seizing money from bank accounts. The plan, which is part of a larger bailout package being negotiated with other European countries, has been met with fury in Cyprus and has sent jitters across financial markets. (AP Photo/Nikolas Giakoumidis)

Nicosia, Cyprus — Lawmakers in Cyprus decisively rejected a plan yesterday to seize up to 10 percent of people’s bank deposits in order to secure an international bailout and prevent a collapse of the country’s banks.

The vote leaves the tiny Mediterranean economy in financial limbo, but hundreds of protesters outside Parliament cheered and sang the national anthem when they heard the bill failed.

Still, Cyprus needs 15.8 billion euros ($20.4 billion) to bail out its heavily indebted banks and shore up government finances. If it doesn’t get the money, the banks could fail, Cyprus’ government finances could be ruined for years and the country could face expulsion from the 17-country euro currency union. Eurozone countries and the International Monetary Fund have pledged to provide $12.9 billion in rescue loans if Cyprus can come up with the remainder.

With the country’s banks closed since Saturday to avoid a run, Cypriot leaders will now try to hatch a more politically palatable plan that might also satisfy officials in the eurozone and IMF.

The plan that was rejected yesterday — with 36 votes against, 19 abstentions and one absence — had been amended to shield the smallest depositors, those with under $25,858 in the bank. But deposits up to $129,290 are supposed to be insured by all euro countries. There has been widespread condemnation of the plan throughout Europe since it was announced over the weekend.

Global financial markets were on edge yesterday, but investors so far have taken the latest turmoil in Europe in stride. The Cypriot economy is tiny and there is hope that Europe’s political leaders can find a way to bolster the country’s finances and prevent it from leaving the euro. After the Cypriot vote came in, the Dow Jones industrial average ended the day 3 points higher at 14,455. Earlier in the day, European markets closed slightly lower while the euro edged down 0.4 percent against the dollar.

“This is not the end of the process, but instead kicks off a further round of negotiation,” said Alex White of J.P.Morgan. “The Cypriot authorities wanted to conduct the vote so that they could reaffirm the extent of their difficulties to the Europeans.”

Part of the reason for the market calm is that the European Central Bank has promised to do whatever it takes to protect the euro. It has a plan in place to buy the government debt of any countries that fall into financial trouble, provided they ask for help. That has helped keep bond market borrowing rates manageable for Italy and Spain, for example.

The ECB said after the Cyprus vote that it would continue providing liquidity to Cypriot banks to prevent their immediate collapse. Some had feared that if Cyprus rejected the bailout, the ECB might stop providing support, letting the banks fail.

Of the $20.4 billion that Cyprus needs, roughly $10.73 billion is for its two top lenders — Bank of Cyprus and Laiki Bank, which is effectively controlled by the government already.

About $9.7 billion would be used to finance the country’s deficits over the next 4 years and to cover a $1.94 billion debt payment that comes due in June.