Cyprus officials and international representatives ended torturous negotiation in the early hours of Sunday with no agreement on a plan to raise money the island nation needs to qualify for a bailout package. Talks are set to resume later Sunday in Brussels, but time is running out: Failure would mean Cyprus could declare bankruptcy in just two days and possibly have to exit the eurozone.
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Cyprus President Nicos Anastasiades and Finance Minister Michalis Sarris will travel to the Belgian capital early Sunday. A viable plan must be cemented before finance ministers from the 17 countries that use the euro currency meet in Brussels in the evening.
"Negotiations are at a very delicate phase," government spokesman Christos Stylianides said in a statement. "The situation is very difficult and the margins very limited."
Russian financial aid failed
Cyprus has been told it must raise €5.8 billion in order to secure €10 billion in rescue loans from other European countries that use the single currency, as well as from the IMF.
The IMF, European Central Bank and European Commission — known as the troika — will determine whether the plan that the Cypriots devise will meet the requirements for any international bailout package. The plan must be presented to the eurozone finance ministers for final approval.
The country's lawmakers soundly rejected an unpopular initial plan that would have seized up to 10 per cent of people's bank accounts, and Cyprus is now seeking another way to raise the desperately needed money. But the idea of some sort of deposit grab returned to the fore after Cyprus's attempt to gain Russian financial aid failed.
According to a second finance ministry official, who also spoke on condition of anonymity because he's not authorized to speak about the negotiations, new laws may not be needed if negotiators opt for a "voluntary contribution" from Bank of Cyprus savings accounts above €100,000, which is the insurance limit.
Another option being considered is smaller tax on all bank deposits above €100,000.
Emergency funding stops Monday
The ECB has said it will stop providing emergency funding to Cyprus's banks after Monday if no new plan is in place. Without the ECB's support, Cypriot banks would collapse on Tuesday, pushing the country toward bankruptcy and a potential exit from the 17-nation bloc that uses the euro currency.
"We recognize the progress now being made by the Cypriot government toward a solution which can pave the way for an agreement on a financial assistance program for Cyprus," European monetary affairs commissioner Olli Rehn said in Brussels. "Intensive work and contacts will continue in the coming hours."
Cypriot President Nicos Anastasiades was among those locked in the late-night talks at his presidential palace with the troika and others. A eurozone finance ministers meeting is due to be held in Brussels on Sunday evening. Anastasiades was also expected to fly there.
Cypriot banks have been shut this past week while the plan was being worked out, and are not due to reopen until Tuesday. Cash has been available through ATMs, but many run out quickly, and those machines for the troubled Laiki Bank are only dispensing €260 a day.
Susana Constantinou, a Canadian who has lived in Cyprus for 22 years, told CBC News business at her small supermarket in a village of about 3,000 people is down roughly 50 per cent. She said about two-thirds of the population are senior citizens.
"They don't have Visa cards. They can't go to the ATM and pull out money," said Constantinou. "People don't have any cash, and our suppliers are demanding cash."
She said there is a lot of anger and frustration.
"[Everyone wants] a decision and they want the banks to open. Everyone wants life to go back to normal," she said. "But I don't think it's going to go back to normal."
Restructuring draws protests
Cyprus took significant steps toward cementing a new plan Friday night, when its lawmakers approved nine bills, including three crucial ones that will restructure ailing banks, restrict financial transactions in emergencies and set up a "solidarity fund" that will act as the vehicle for raising funds from investments and contributions.
The bank restructuring will include the country's troubled second largest lender, Laiki, which suffered heavy losses after being exposed to toxic Greek debt.
Thousands of angry bank employees afraid of losing their jobs marched through the center of Nicosia to the Finance Ministry and Parliament, some with placards around their necks reading: "No to the bankruptcy of Cyprus."
"We are protesting for our jobs, and jobs of all in Cyprus," bank employee Zoei Koiachi said.
Worried about her job after 36 years at Laiki, Eleni Koutsourdou said lawmakers should have approved the initial plan for the 10 per cent deposit grab for the sake of protecting the financial sector. "It's unfair. They pocketed everything and we end up paying for it," she said.
The restructuring of Laiki and the sale of the toxic-asset laden Greek branches of Cypriot banks is expected to cut the amount the country needs to raise to about €3 billion instead of €5.8 billion, officials have said. Bank of Cyprus, which was also exposed to Greek debt, might also be involved in the restructuring.
"We have to be clear to protect the financial system and for banks to open Tuesday with a clear picture," Finance Minister Michalis Sarris said.