Uncertainty as Cyprus parliament votes against deposit levy Rejected ... lawmakers raise their arms to vote against a controversial bill to tax deposits in Nicosia. FRANKFURT - Wrangling is expected to continue over Cyprus' controversial bank tax, with the island's parliament resoundingly voting against a deposit levy. Apart from the creation of unprecedented uncertainty, the key question is what happens now? The vote was a key step to securing an international bailout for the country and avoid default. Earlier on Wednesday, the Cypriot government had proposed to spare smaller depositors from paying the levy. But this wasn't enough to secure the support of the country's parliament. Global markets have been rattled in recent days after Cyprus was forced to seek billions of dollars in bailout funds from Europe to help prop-up its ailing banking system. While the Cypriot economy is relatively small, concerns remain of contagion spreading to other banks. "Apart from the creation of unprecedented uncertainty, the key question is what happens now?" said ANZ economists on Wednesday in a note to clients. Cypriot banks are due to re-open on Thursday and if there is to be an attempt to re-negotiate the bail-out terms, this may be extended until next week. Under a deal struck over the weekend with Cypriot creditors, a 6.75 per cent levy will be placed on all deposits under 100,000 euro. For deposits over this amount, the levy will increase to 9.9 per cent. The tax is aimed at raising funds to help pay for the 10 billion euro bailout needed by country's crippled banks. However, a draft bill submitted by the Cypriot government to the country's parliament earlier Wednesday proposes to scrap the levy on bank deposits below 20,000 euro. Cyprus central bank chief Panicos Demetriades told the country's parliament that the island's banks would lose 10 per cent of their deposit base within days if deposits below 100,000 euro were hit with the tax. The draft rules had set that deposits between 20,000 and 100,000 euro incur the 6.75 per rate, while the 9.9 per cent tax on all deposits above that level remains. The proposed rules came as the former Cyprus central bank governor Athanasios Orphanides said Europe's governments were "essentially blackmailing" Cyprus. Speaking on Bloomberg TV, Mr Orphanides hit out at the bank levy. What we're witnessing is the slow death of the European project. We are in a situation where some European governments are essentially taking actions that are telling citizens of other member states they are not equal under the law," he said. "What we have seen for the last few days is a very serious blunder by European governments that essentially are blackmailing the government of Cyprus to confiscate the money that belongs rightfully to depositors in the banking sector in Cyprus," he said. The way the strongest governments of Europe have blackmailed the Cypriot government to confiscate deposits is essentially sending a message that no one with deposits in a small country like Luxembourg should feel safe about their deposits. No one with deposits in a weak country, like Spain, should feel safe about deposits," he said in the interview. There were two Cypriot banks operating in Australia over the past decade, although both have since sold their operations in recent years. Australian banking exposure to Cyprus is small, running at just $76 million, according to latest Bank for International Settlements figures. Much of the large deposits held by Cypriot banks reportedly belong to Russians. In other developments, Cyprus' finance minister Michalis Sarris has left for Moscow to seek an extension to an existing 2.5 billion euro loan which has provided essential funding for the Cypriot government.