NICOSIA, Cyprus (AP) — Cypriot lawmakers put the country’s bailout deal back on track Tuesday after swiftly reversing their rejection of two pieces of legislation that international creditors demanded in return for a second 1.5 billion euro ($1.98 billion) installment from a 10 billion euro loan.
In the late night revote, 41 lawmakers voted in favor and only 3 against legislation pertaining to the supervision and reform of the country’s troubled cooperative and commercial banks. The two bills were part of a larger package of bailout measures that lawmakers were voting on ahead of a meeting of euro area leaders next week when it’s expected that the installment will receive the green light.
The legislation was a prerequisite for Cyprus’ euro area partners and the International Monetary Fund to release the next installment which will be used to restore cooperative banks’ depleted capital buffers. In exchange for the cash support, the government would take ownership of nearly all of the cooperative banks’ shares.
“Despite the problems of the political system and the mistakes and omissions of us all, politicians have demonstrated the responsibility that led to an agreement for the sake of what’s best for our country,” Averof Neophytou, leader of the ruling, center-right DISY party told parliament.
Lawmakers had narrowly defeated the bills in a vote earlier Tuesday amid disagreements over certain provisions of the legislation. Dissenting lawmakers, mainly from the communist-rooted, second largest AKEL party, worried that the bills wouldn’t prevent the selling off of cooperative bank shares to private investors.
Finance Minister Harris Georgiades rushed to Parliament to join party leaders in an emergency, late night meeting that struck a compromise deal satisfying a key AKEL demand to enable cooperative banks to eventually buy back their shares and regain a level of autonomy.
Lawmakers from AKEL and the smaller socialist EDEK party subsequently changed tack in the revote and approved the revised legislation.
No one expected the outcome of the first vote given the high stakes for the crisis-stricken country. But once the tally was in, it sowed confusion within Parliament and prompted speculation that Cyprus’ 23 billion euro ($30.36 billion) financial rescue deal that it negotiated with its euro area partners and the International Monetary Fund in March would be put into jeopardy.
Another serious concern was that had the legislation not been approved immediately, depositors would rush once cooperative banks opened their doors Friday morning to pull all their money out amid fears of their imminent collapse — something that would have put severe strain on the country’s decimated banking sector.
As part of its rescue, Cyprus in March agreed on a deal that saw deposits over 100,000 euros in its two biggest banks take major losses. Second largest lender Laiki was shut down and folded into the bigger Bank of Cyprus which is undergoing major restructuring. Restrictions on withdrawals and transfers from banks were also imposed to prevent a run.
Meanwhile, several hundred protesters gathered outside the parliament earlier Tuesday to denounce the legislation they say will only fan poverty.
Demonstrators from AKEL and other left-wing groups shouted slogans and held aloft banners criticizing the country’s financial rescue plan. One banner read “We won’t become 21st -century slaves.”
Cyprus’ creditors have said that the country is making good progress in meeting its bailout conditions, but warned authorities to remain vigilant in sticking to the terms of the agreement amid high uncertainty over the country’s economic outlook.