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Cypriot deposits grab shocks Europeans

Protesters rally in Nicosia, Cyprus, against a one-time

Protesters rally in Nicosia, Cyprus, against a one-time tax on bank deposits as part of a $20-billion eurozone bailout agreed on last weekend. (March 18, 2013) Credit: EPA

A plan to seize up to 10 percent of people's savings in the small Mediterranean island nation of Cyprus sent shock waves across Europe Monday as households realized the money they have in the bank may not be safe.

A weekend agreement between Cyprus and its European partners called for the government to raid bank accounts as part of a $20.4-billion financial bailout, the first time in the eurozone's crisis that the prospect of seizing individuals' savings has been raised.

Cypriot authorities, facing outrage, delayed a parliamentary vote on the seizure and ordered banks to remain shut until Thursday while the government tries to modify the deal to reduce the hit on people with small deposits.

Several hundred protesters gathered outside the parliament building, with some chanting "thieves, thieves" and "people wake up, they're drinking your blood." One demonstrator dumped sheep wool and animal feces in front of a line of police officers guarding the entrance. Protesters later marched on to the presidential palace.

"It's a precedent for all European countries. Their money in every bank is not safe," said lawyer Simos Angelides.

In order to get the equivalent of $13 billion in bailout loans from international creditors, Cyprus agreed to take a percentage of all deposits -- including ordinary citizens' savings. The surprise deal stoked fears that deposits in other countries could be targeted.

Financial stocks fell sharply across Europe, as did the euro, even though the Cypriot economy accounts for only 0.2 percent of the combined output of the 17 European Union countries that use the currency.

"The damage is done," said Louise Cooper, who heads financial research firm CooperCity. "Europeans now know that their savings could be used to bail out banks."

The Cypriot government is now trying to modify the terms of the original plan and get a better deal for small savers with less than 100,000 euros.

While trying to make the package more appetizing for those with low savings, the government has to make sure that the total raised remains the same at 5.8 billion euros.

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