Cyprus' politicians are due to vote Friday, March 22 on a hastily drawn-up "Plan B" to rescue their economy before the European Central Bank (ECB) withdraws support for the country's banking sector if a bailout is not agreed by Monday, March 25.
The series of bills is thought to include a solidarity fund to be created out of state assets in order to meet the ECB's ultimatum to raise billions of euros, as well as the imposition of capital controls. At the same time, the restructuring of the country's troubled banks, ground zero of the crisis, could be delayed according to reports.
It appears Cyprus has been unable to agree an alternative bailout from Russia, to which it was forced to turn after MPs in Nicosia flatly refused the first bailout plan earlier this week. That scheme sought to levy a one off tax on Cyprriot bank deposits in order to find €5.8bn towards the €17bn needed. The rest would come from privatisation receipts and a €10bn loan from the EU and International Monetary Fund (IMF). All of which makes "Plan B" essential.
Following a phone conference on the evening of March 21 to discuss the situation, Eurozone finance ministers said they stand "ready to discuss with the Cypriot authorities a draft new proposal", which they expected, "the Cyprus authorities to present as rapidly as possible."
If no "Plan B" is found by March 25, the ECB said in a statement that it could cut off the liquidity it is currently providing to the island's banks. Given that ECB funding is the only thing keeping Cypriot banks alive, cutting off that lifeline would trigger a collapse, and possibly the country's exit from the euro.
The island state's two largest banks - Bank of Cyprus and Laiki - are most at risk, and unsurprisingly there were lengthy queues at many cash machines on Thursday as banks and the domestic stock market remained closed.
Averof Neophytou, the deputy leader of the ruling Disy party, confirmed to The Guardian that party leaders have agreed to create a solidarity fund. Details of the scheme have not been released, but it is believed the fund could use Cyprus's energy resources as collateral, or include state assets, pension funds or the property of the Church of Cyprus.
Parliamentary speaker Yiannakis Omirou, who leads the small Edek socialist party, was reported as saying the issue of taxing bank deposits had not been discussed during the meeting, suggesting such a levy - the idea of which set off the whole brouhaha at the start of the week - may now be off the agenda. The Cyprus government had proposed a 6.75% tax on savers with more than €20,000 in the bank, with the charge rising to 9.9% for those with more than €100,000.
This provoked outrage - with the markets condemning the way it would undermine the entire European banking system by throwing out the idea of guaranteed deposits - and was unanimously rejected by the Cypriot parliament on March 19. In desperation, the Cypriot finance minister, Michael Sarris, was dispatched to Moscow the same day in an attempt to secure a rescue package.
Cyprus is a favourite offshore financial haven for Russian business. As of January, €43bn of the €68bn deposited in Cypriot banks was held by domestic residents, according to the central bank. Of that €25bn or so that came from the rest of the world, the bulk is believed to be from Russia. However, many Russian companies are domiciled in Cyprus and so technically count as domestic, meaning the volume of Russian cash in the banks could well be far higher.
However, the chairman of the Eurogroup - the collective Eurozone finance ministers - Jeroen Dijsselbloem, told the European parliament on March 21 that Moscow has indicated it is not willing to extend "another loan or an investment in the banks", Reuters reports. Russia already extended Cyprus a €2.5bn low-interest loan to help prop up its banks last year. While it is thought to have agreed to adjust the terms on that, it has been playing hardball on any involvement in a larger bailout, despite the risks to such a huge wedge of cash. Moscow had been thought to be holding out for a generous slice of Cyprus' offshore gas fields in return.
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