NICOSIA, March 16 (Xinhua) -- Cyprus President Nicos Anastasiades said on Saturday he was faced with decisions which had already be taken beforehand at a Eurogroup meeting in Brussels which forced bank depositors to take a loss as part of a bailout deal for Cyprus.
"We were confronted .. with faits accomplis which brought us before the following dilemmas: either on Tuesday 19 March, we proceed with a catastrophic scenario of disorderly default or we opt for a scenario of painful but controlled management of the crisis..," Anastasiades said in a written statement.
Cyprus' Eurogroup partners and the International Monetary Fund agreed on a rescue program for the eastern Mediterranean island's economy imposing an unprecedented so-called "solidarity contribution" of 9.9 percent on deposits above 100,000 euros and 6.75 percent on lower amounts.
The levy will be paid by both local and foreign depositors, including many Russian and British businessmen.
The decision was received with stunned disbelief by the population, with several hundred angry people rushing to co-operative credit societies, the only banks working on Saturday to withdraw their deposits -- only to be told that they had been blocked.
Politicians also reacted in anger and some of them demanded a referendum on the measure.
The parliament will be convened in an extraordinary session on Sunday to be addressed by President Anastasiades, in power for just 16 days. He will also make an address to the people to explain in detail the reasons behind accepting the haircut on deposits.
Anastasiades said in his statement that had he not accepted the arrangement, the European Central Bank would stop providing liquidity to one of the two largest Cypriot banks, which he did not name, leading to its immediate collapse after a bank holiday on Monday.
He added that the second bank would have to suspend operations as it would not be able to avoid default.
Cyprus sought bailout support in June, 2012, after the European Central Bank said it would stop liquidity support to Cyprus Popular Bank, which along with the Bank of Cyprus, suffered huge losses when a European Union summit agreed to devalue Greek bonds by about 75 percent as part of the Greek bailout.
However, eight months of negotiations with the previous government failed to finalize a provisional agreement reached at the end of last November leaving it to the freshly elected president to handle the situation.
Anastasiades said that under conditions of a banking system collapse, the already moneyless state would have to pay an estimated 30 billion euros in compensation for bank deposits as a guarantor for deposits below 100,000 euros and would ultimately to a loss of 60 percent on the total amount of deposits.
"Such an uncontrollable situation would have led to the collapse of the whole banking system with the subsequent fallout," Anastasiades said.
He added this would mean a total collapse of the services sector and a possible exit from the Eurozone, possibly forcing Cyprus to devalue the Cypriot currency by 40 percent.
On the other hand, he said, this bitter solution will rescue bank deposits and the banks along with about 8,000 jobs, will drastically reduce the public debt and make it sustainable and saves billions of euros belonging to provident and pension funds.
"We are not beautifying the situation. The solution which we have chosen may be painful, but it was the only one that will allow us to continue our lives..and will lead to an historic and final rescue of our economy," said Anastasiades.
After returning from Brussels, Anastasiades briefed party leaders at a night meeting, telling them that the necessary legislation for making possible the levy on deposits is ready to be submitted to an emergency session of parliament.
The legislation has to be approved before banks resume operations on Tuesday morning.
Anastasiades made an appeal for support in the face of statements by opposition parties that they will reject the haircut on deposits.
"In the next few hours will be called to undertake our responsibilities," said Anastasiades in concluding his statement.
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