Cyprus Scrambles to Avoid Bankruptcy

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The tiny European country of Cyprus is desperately in need of a bailout. The Cypriot parliament is set to reject a controversial tax on bank deposits Tuesday as the island nation nears a default on its loans and a possible banking collapse.

So far, the tax is the only proposed solution to extricate the country's debt crisis, but the public backlash has government leaders reconsidering.

Over the weekend, the European Union developed a plan to rescue Cyprus -- a 10 billion euro bailout package.

But in return for the funds, the nation would be required to confiscate up to 10 percent of its citizens' savings account.

The announcement caused an immediate uproar.

"Why should they take our money?" one Cypriot asked. "I do not understand this. We work and we deposit money for our own purposes and they come to take our money? This is unfair. Unfair."

Cyprus built up its economy in recent years, but its banks invested heavily in Greece. And when Greece's finances fell apart, it hurt the banks in Cyprus badly.

"When Greece defaulted, it was the case of one bad mushroom really damaging a very, very good mushroom," financial analyst Marco Elser said.

The situation in Cyprus has raised concerns that other struggling nations might eventually try to tax private bank deposits.

"This is something that will happen as a precedent for every other European country," attorney Simon Angelides, a resident of Nicosia, said. "All other countries right now, all their money in every bank is not safe."

The crisis is also sparking fears of potential runs on the banks in the future, as investors try to hold onto their money.

"I have seen that the Spanish and Italian banks have lost massively this morning, partially up to 4 percent, which means there is a huge danger that money has been withdrawn," Robert Halver, head of market research at Baader Bank AG, said.

European analysts don't expect bank runs elsewhere in Europe. For now, the government in Cyprus is still working to find a way to pay for the bailout it needs to keep its banking system from facing a serious crisis.

Banks in Cyprus are closed Tuesday as lawmakers try to come up with a deal that doesn't affect as many people.

If parliament doesn't pass a package, the country could go bankrupt and drop out of the euro currency.

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