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Cyprus parliament to vote on savings levy

European Union (EU) and Cypriot flags flutter atop the Presidential palace in Nicosia February 22, 2013. REUTERS/Yorgos Karahalis
European Union (EU) and Cypriot flags flutter atop the Presidential palace in Nicosia February 22, 2013. REUTERS/Yorgos Karahalis

By Michele Kambas

NICOSIA (Reuters) - Cyprus's parliament will decide on Sunday whether savers must pay a levy on bank deposits under terms for an international bailout to avert bankruptcy - with approval far from certain.

The euro zone demand on Saturday that savers pay up to 10 percent of deposits as a condition for the 10 billion euro ($13 billion) bailout drew fury in the eastern Mediterranean island and caused some jitters elsewhere in the region.

Cypriots emptied cashpoints after news emerged of bailout terms which broke a previous euro zone taboo on protecting depositors in its efforts to address the regional debt crisis.

Newly elected Cypriot President Nicos Anastasiades said refusing the bailout would have led to the collapse of the island's two largest banks, badly singed by their exposure to bailed out neighbor Greece.

The tax on deposits in Cyprus, which accounts for only 0.2 percent of the euro zone's economy, is expected to raise up to 6 billion euros as a condition for the bailout, mainly needed to recapitalize banks.

Those affected will include rich Russians with deposits in Cyprus and Europeans who have retired to the island as well as Cypriots themselves.

The size of foreign deposits in Cyprus - estimated at 37 percent of the total - was one reason the euro zone agreed to the tax on savings, to take effect when banks reopen on Tuesday. Cyprus stopped electronic transfers over the weekend.

In Spain, one of four other states getting euro zone help and seen as a possible candidate for a sovereign rescue, officials were quick to say that Cyprus was a one-off. A Bank of Spain spokesman said there had been no sign of deposit flight.

Two Cypriot banks in Britain told savers their money was safe.

Cyprus's parliament was due to convene at 4 p.m. (1400 GMT) in an emergency session to discuss the proposed penalties on deposits: 9.9 percent for those exceeding 100,000 euros and 6.7 percent on anything below that.

PAIN OR CATASTROPHE

The choice facing Cyprus was between "the catastrophic scenario of disorderly bankruptcy or the scenario of a painful but controlled management of the crisis," President Anastasiades said in a written statement.

His right-wing Democratic Rally party, with 20 seats in the 56-member parliament, needs support from other factions for a vote to pass.

"The dilemmas are very tough," said Marios Karoyian, head of the Democratic Party, junior partner in the coalition government. "Things are unbelievably hard."

He did not say which way his party would vote on Sunday. It is already split over backing Anastasiades three weeks ago.

Cyprus's Communist party AKEL, accused of stalling on a bailout during its tenure in power until the end of February, was likely to vote against the measure. The socialist Edek party called EU demands "absurd".

"This is unacceptably unfair and we are against it," said Adonis Yiangou of the Greens Party, the smallest in parliament but with the potential ability to swing any vote.

"They have got a gun to our head," he said.

Saving Cyprus's financial sector would have been impossible without the levy because of its size relative to output - more than twice the EU average, Dutch Finance Minister Jeroen Dijsselbloem said in Brussels.

(This story was refiled to add dropped word "percent" in seventh paragraph)

(Editing by Matthew Tostevin)

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