Portugal president says Cyprus levy "very dangerous"

LISBON Mon Mar 18, 2013 6:15pm GMT

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LISBON (Reuters) - The decision to seize money from bank deposits in Cyprus as part of an international bailout lacked "common sense" and risked undermining confidence in the banking system, Portuguese President Anibal Cavaco Silva said on Monday.

The terms of Cyprus' 10 billion euro (8.6 billion pounds) bailout by the European Union, announced over the weekend, broke with previous practice that depositors' savings were sacrosanct.

The news was closely watched in Portugal, which negotiated its own 78-billion-euro bailout in 2011.

"Europe is taking a very dangerous path ... Sometimes I think common sense appears to have migrated elsewhere," Cavaco Silva said during a visit to Rome, in remarks aired on Portugal's SIC television.

"It's in all the books that when there is lack of confidence in a banking system, there is no country or nearly no country that escapes, because confidence is one of the pillars of a financial system," Cavaco Silva added.

The role of presidents in Portugal is mostly symbolic. But they have the power to veto laws and dissolve parliament in certain situations.

Under Portugal's deal, 12 billion euros were set aside for its banks but were not fully used. Portugal has already slashed spending and sharply raised taxes under its bailout.

Portugal's central bank governor, Carlos Costa, who is also a European Central Bank governing council member, earlier on Monday said the Cypriot levy would not be replicated in other European countries, including Portugal.

"Our depositors can feel relaxed, secure and confident," he said.

(Reporting By Sergio Goncalves and Axel Bugge; Editing by Andrew Heavens)

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