Cyprus has rejected a bailout deal designed to stop the country defaulting on its debts. In a contentious vote, lawmakers in Parliament rejected the plan by 36 votes to 19. The country has been rocked by debate and protest over the bailout deal which has been called unfair by Cyprus politicians and leaders as far afield as Moscow.
It is now unclear what the country can do in order to resolve its financial situation. The European Union said that Cyprus had to make up about a third of the bailout money by itself. Its attempts to do so seem to have caused most of the trouble associated with the bailout deal.
The most contentious part of the bailout would have seen ordinary depositors in Cyprus face a one time tax on their savings. The tax ranged between six and ten percent.
That move, to nobody's surprise, was highly unpopular. There was a late addition of a lower limit imposed on the size of deposit required to qualify for the tax.
Cyprus must now go back to the drawing board with officials from the European Union, the European Central Bank and the International Monetary Fund. Cyprus' president Nicos Anastasiades predicted earlier today that the bill would not pass because of opposition to the terms weighing on deposits.
European regulators may have seen Cyprus as the perfect opportunity to experiment, in order to probe the edges of bailout etiquette. They've certainly found the edge, and the result may be a destabilization of the continent's financial system.
Cyprus was a small bailout that few were even paying attention to before last weekend's announcement of the Cyprus deposit tax.
Today Cyprus is the center of the financial world. The country's government will not be able to make a few small changes to the bill and then return it to parliament. The whole method of gathering revenue appears to be in contention meaning that the country will probably have to do something completely new.
The failure in Cyprus' parliament is a complete failure of European politics. A situation, like problems in Cyprus, a small country even by European standards, that could have been easily solved will now spill over into the market.
Another solution to Cyprus' problems is likely to come before the week is out. Cyprus is still in front of a train, and this disaster may have put the entirety of Europe right there with it.