Cyprus seeks Russian rescue

Cyprus pleaded for a new loan from Russia on Wednesday to avert a financial meltdown.

Cyprus is seeking a further 5 billion euro bailout from Russia. Picture: AFP

MOSCOW - Cyprus pleaded for a new loan from Russia on Wednesday to avert a financial meltdown, after the island's parliament rejected the terms of a bailout from the EU, raising the risk of default and a bank crash.

Cypriot Finance Minister Michael Sarris said he had not reached a deal at a first meeting with his Russian counterpart Anton Siluanov in Moscow, but talks there would continue.

Russia's finance ministry said Nicosia had sought a further 5 billion euros, on top of a five-year extension and lower interest on an existing 2.5 billion euro loan.

Cyprus is seeking Moscow's help after parliament voted down the euro zone's plan for a 10 billion euro bailout on Tuesday.

Cypriots balked at EU demands for a levy on bank deposits to raise 5.8 billion euros, an unprecedented measure that opponents said would have violated the principle behind an EU-wide guarantee on deposits of up to 100,000 euros.

Moscow has its own interests in ensuring the survival of banks in Cyprus, a haven for billions of euros squirreled abroad by Russian businesses and individuals.

The European Central Bank's chief negotiator on Cyprus, Joerg Asmussen, said the ECB would have to pull the plug on Cypriot banks unless the country took a bailout quickly.

"We can provide emergency liquidity only to solvent banks and... the solvency of Cypriot banks cannot be assumed if an aid programme is not agreed on soon, which would allow for a quick recapitalisation of the banking sector," Asmussen told German weekly Die Zeit in an interview conducted on Tuesday evening.

Austrian Chancellor Werner Faymann said he could not rule out Cyprus leaving the euro zone, although he hoped its leaders would find a solution for it to stay.

Cyprus Energy Minister George Lakkotrypis was also in Moscow, officially for a tourism exhibition, but fuelling talk that access to untapped offshore gas reserves could be on the table as part of a deal for Russian aid. Cyprus has found big gas fields in its waters adjoining Israel.

"We had a very honest discussion, we've underscored how difficult the situation is," Sarris told reporters after talks with Siluanov. "We'll now continue our discussion to find the solution by which we hope we will be getting some support.

"There were no offers, nothing concrete," he said.

Speculation was rife over the shape that Russian help might take. Government spokesman Christos Stylianides denied a Greek media report that Cyprus had reached a deal for Russian investors to buy Cyprus's second largest bank, Cyprus Popular, which was taken over by the state last year.

Not a single Cypriot lawmaker voted for the EU bailout, which included a proposed levy that would have taken nearly 10 percent from accounts over 100,000 euros. Smaller accounts would also have been hit, although the government proposed softening the blow to spare savers with less than 20,000 euros.

It was the first time a national legislature had rejected the conditions for EU assistance, after three years in which lawmakers in Greece, Ireland, Portugal, Spain and Italy all accepted biting austerity measures to secure aid.

German Chancellor Angela Merkel, whose country is Europe's main paymaster, said it was up to the Cypriot government to come up with an alternative proposal but it was fair to expect savers with deposits over 100,000 euros to contribute to the bailout.

The EU has a track record of pressing smaller countries to vote again until they achieve the desired outcome.