20 Mar 2013

Cypriot banks may never reopen, Germany warns

8:15 pm on 20 March 2013

Germany's finance minister has warned Cyprus that its crisis-stricken banks may never be able to reopen if it rejects the terms of a eurozone bailout.

Wolfgang Schaeuble was speaking after the Cypriot parliament rejected the bailout deal, which would have imposed a one-off tax on bank deposits.

Not a single MP voted in favour of the deal, sending a clear message to Brussels that the strategy needs a drastic rethink.

The BBC's correspondent in the Cypriot capital, Nicosia, says the eurozone's plan has completely unravelled and the country is in turmoil.

The rescue deal prompted widespread outrage at the prospect of ordinary savers being forced to pay a levy of 6.75%.

The finance ministry tried to soften the deal by exempting savers with less than 20,000 euros $31,000), while those over 100,000 euros ($157,000) would still be charged at 9.9%. But it wasn't enough to placate critics.

Mr Schaeuble says the ECB (European Central Bank) has made it clear that without a reform programme for Cyprus the aid can't continue.

"Someone has to explain this to the Cypriots," he says, "and I think there's a danger that they won't be able to open the banks again at all.

"Two big Cypriot banks are insolvent if there are no emergency funds from the ECB."

Fearing a run on accounts, Cyprus's banks have all closed until at least Friday. The local stock exchange also remains closed.