REPORT: President Of Cyprus Doesn't Have Backing To Push Through Controversial Bailout Deal

The EU bailout of Cyprus banks negotiated this weekend, which contains a controversial haircut on depositors, has just been pushed back again.

Originally, it was scheduled for today, but this morning, it was postponed until tomorrow.

Now, Peter Spiegel at the FT reports that tomorrow's vote has been cancelled as well.

According to a report from Antenna TV (via Bloomberg), Cypriot President Nicos Anastasiades will tell the Eurogroup that he doesn't have the backing in parliament to pass the bill.

JPMorgan's Alex White discussed the possibility of this scenario in a note to clients over the weekend, writing:

A ‘no’ vote, or a failure to bring the package before parliament in the immediate term could have significant regional implications. Germany has made clear that it won’t bring any measure which does not include depositor haircuts before the Bundestag.

The extent to which the region has played hard-ball with Cyprus was indicated in Anastasiades' claim that he was threatened with an immediate withdrawal of ELA support if he did not commit to the deal as it stands.

In the event of a need to renegotiate, the path of least resistance in our view would probably see an amendment of the existing deal, such that the pain is redistributed to impact uninsured depositors (we think there is a chance of the Cypriot Government seeking to amend the terms in this direction before bringing measures to parliament if it faces the prospect of failure).

In effect however, the damage would already have been done if Cyprus sees significant deposit flight, absent a deal. In the context of the Troika’s current disagreement with Greece on further disbursements, and the likelihood of political dead-lock in Italy, a return to a more stressful episode of the European crisis cannot be discounted, in our view.

Should these hurdles be passed, longer-term we think there is a possibility of legal challenge to the package, under both Article 23 of the Cypriot Constitution, and under the European Convention of Human Rights (ECHR) given the requirements of both in respect of property rights.

Not getting the deal through parliament this week – which could happen, given how intense the debate will probably be – is the biggest near-term risk for markets, according to Wall Street strategists.