Europe sets Cyprus bailout deadline

Cypriots hold placards during a protest against an EU bailout deal outside the parliament in Nicosia on March 18, 2013. Picture: AFP/ PATRICK BAZ
MOSCOW - The European Central Bank gave Cyprus until Monday to raise billions of euros to clinch an international bailout or face losing emergency funds for its crippled banks and inevitable collapse.

The warning came with the island's leaders locked in talks on a "Plan B" to raise 5.8 billion euros demanded by the EU under a 10 billion euro ($13 billion) rescue, after angry lawmakers threw out a tax on deposits as "bank robbery".

Officials said new options discussed on Thursday could include nationalising pension funds of semi-state companies, issuing an emergency bond linked to future natural gas revenue or a revised bank deposit levy hitting only large investors. 

The European Central Bank, which has Cyprus's banks on a liquidity lifeline, said it had until Monday to get a deal in place, or funds would be cut off.

"Thereafter, Emergency Liquidity Assistance (ELA) could only be considered if an EU/IMF programme is in place that would ensure the solvency of the concerned banks," it said.

The government has ordered banks to stay closed until Tuesday. The Cypriot stock exchange also suspended trading for the rest of the week.

There were long queues at some bank branches in Nicosia on Thursday as staff replenished cash machines, which have continued to operate while banks have been closed since last week.

In Moscow, Cypriot Finance Minister Michael Sarris said he was discussing possible Russian investments in the island's banks and energy resources to reduce its debt burden, as well as an extension to an existing 2.5-billion-euro Russian loan.

Russian citizens have billions of euros to lose in the island's outsized and now-teetering banking sector.

"The banks are the ultimate objective in any support we get, so it'll either be a direct support to the banks or the support that we get through other sectors will be channelled to the banks," Sarris told Reuters during a second day of talks with his Russian counterpart, Anton Siluanov.

He said Cyprus had no plans to borrow more money from Russia and add to its debt mountain.

Jeroen Dijsselbloem, Dutch head of the group of euro zone finance ministers, said new loans from Russia would not solve the debt issue, and that a revised levy on tax deposits was still on the table.

"I'm not sure that this package is completely gone and failed, because I don't see many alternatives," he told the European Parliament in Brussels.

EU officials believe at least some of the 5.8 billion they are demanding should come from the 68 billion euros in Cypriot banks, 38 billion of which are in the form of big deposits of more than 100,000 euros, mainly from foreigners.

But hitting small bank depositors causes visceral outrage, and the Cypriot government fears that foisting too big a burden onto large depositors would wreck the offshore financial industry that forms much of the country's economy.

Among the other options, nationalising pension funds of semi-public companies could yield between 2 billion and 3 billion euros. Issuing bonds linked to future natural gas revenue is problematic because pumping any gas is years away.