Nicosia: Cyprus was Friday reconsidering a tax on bank deposits in “hard negotiations” with a troika of lenders after Russia spurned its plea for an economic lifeline in its race to stave off bankruptcy.
The European Union has given Nicosia until Monday to raise 5.8 billion euros ($7.47 billion) to unlock loans worth 10 billion euros or face being denied European Central Bank (ECB) emergency funds in a move that would collapse its economy.
EU sources have said the bloc is ready to eject Cyprus from the eurozone to prevent contagion of other debt-hit members such as Greece, Spain and Italy.
Long-time ally Russia too cold-shouldered its offer of investment proposals, leaving the country increasingly isolated even as German Chancellor Angela Merkel warned that the patience of its European partners was wearing thin.
The official CNA news agency cited an unnamed government source as saying Cyprus was looking to renegotiate a deal with the troika — the EU, ECB and International Monetary Fund — that includes a “haircut” on bank deposits, calling it the “best solution” under the circumstances.
Government spokesman Christos Stylianides said the government was locked in “hard negotiations with the troika” and that parliament would “soon be called upon to take the big decisions,” but did not elaborate.
He was referring to an emergency session of parliament expected later Friday to examine a raft of eight bills aimed at raising billions of euros to secure the vital bailout.
“The next few hours will determine the future of this country. We must all assume our responsibility,” Stylianides said as the government sought to cool a growing sense of anger and panic among Cypriots fearful that their life savings will disappear in the rubble of a banking collapse.
The “haircut” proposal was abruptly knocked back by MPs when they debated the bailout deal on Tuesday, in a resounding “no” vote that jolted global markets and raised fears of a debt contagion in the eurozone.
But Cyprus’s chamber of commerce and employers’ federation called on MPs to reconsider their opposition to a tax on bank deposits above 100,000 euros to rescue the island’s economy, which has been left reeling by a bank closure all this week and due to run until at least Tuesday.
“The current situation is now affecting all sectors of the economy such as services, trade, industry and construction, it is no longer limited to the areas of financial services,” they warned.
“Businesses can no longer operate and there is a visible risk that many will be forced to temporarily suspend operations.”
The Bank of Cyprus and Popular Bank, the island’s two largest banks which are both in danger of collapse, also came out in favour of a rethink on the levy.
Some among a crowd of 200 protesters outside parliament, mostly employees of Laiki, or Cyprus Popular Bank, who face losing their jobs, also urged MPs to reverse their opposition to the tax.
“The right thing to do was to accept the haircut the way it was suggested then,” said bank worker Andreas Chrysafis.
The latest protest came ahead of an expected evening session of parliament to debate a raft of eight bills to give effect to the government’s reworked rescue plan.
One bill sets up an investment fund and the nationalisation of pension funds, with bonds issued against future natural gas revenues, while another prevents large outflows of capital from the country when banks reopen.
Eurogroup president Jeroen Dijsselbloem said he was awaiting fresh proposals from Nicosia to finalise its plan with the clock ticking down.
“The situation is very uncertain, we’re waiting for Cyprus to propose alternatives,” Dijsselbloem told the Netherlands’ ANP news agency.
German Chancellor Angela Merkel said in Berlin that she wanted Cyprus to remain part of the 17-member eurozone but warned it against “exhausting the patience of eurozone partners.”
Cyprus hopes of an economic lifeline from Russia proved to be illusory, and Finance Minister Michalis Sarris left Moscow on Friday after two days of talks without clinching an agreement.
Russian officials said two major state-owned energy firms had turned down deals proposed by Sarris to fill the 5.8-billion-euro shortfall left by the EU-IMF bailout offer.
“Our investors examined this issue and showed no interest,” Russian news agencies quoted Finance Minister Anton Siluanov as saying.
Prime Minister Dmitry Medvedev said later that Moscow “has not closed the door” on possible future assistance.
The third biggest Greek bank, Piraeus Bank is to acquire the Greek subsidiaries of the Bank of Cyprus and the Popular Bank to ensure the stability of their operations in Greece, a banking source said.
With the absorption, the subsidiaries become Greek banks and eligible for recapitalisation funds made available by the second bailout to Greece, rather than requiring Cyprus bailout money.