Nicosia/Moscow: Russia rebuffed Cypriot entreaties for aid on Friday, leaving the island’s increasingly isolated leaders scrambling to strike a bailout deal with the European Union by next week or face the collapse of its financial system.
In Nicosia, lawmakers considered proposals to nationalise pension funds, pool state assets and split the country’s second-largest bank in a desperate effort to satisfy exasperated European allies.
The governor of the Central Bank, Panicos Demetriades, warned political leaders the country would face a disorderly bankruptcy on Tuesday unless they approved the bills, an official present at the talks said.
“The next few hours will determine the future of the country,” government spokesman Christos Stylianides said before the parliamentary debate. “We must all assume our share of the responsibility.”
Even if the measures are approved, there was no confirmation they would raise the €5.8 billion (Dh27.8 billion) demanded by the EU in return for a €10 billion ($12.93 billion) bailout to avoid a default.
Hundreds of protesters rallied outside the parliament and depositors, who began raiding banks’ cash machines last weekend, queued again to withdraw what they could.
The clock was running down to a Monday deadline set by the European Central Bank for a deal to be in struck before it cuts funds to Cyprus’s stricken banks, potentially pushing it out of Europe’s single currency.
Nicosia angrily rejected a proposed levy on tax deposits in exchange for the EU bailout on Tuesday and turned to the Kremlin to renegotiate a loan deal, win more financing and lure Russian investors to Cypriot banks and gas reserves.
“The talks have ended as far as the Russian side is concerned,” Russian Finance Minister Anton Siluanov told reporters after two days of crisis talks with his Cypriot counterpart, Michael Sarris.
Russians have billions of euros at stake in Cyprus’s outsized and now crippled banking sector, a factor in the EU’s unprecedented demand that bigger depositors take a hit in the interests of keeping Cyprus afloat.
But Siluanov said Russian investors were not interested in Cypriot gas and that the talks had ended without result. Sarris was due to fly home, where lawmakers were locked in yet more crisis talks.
New bills submitted to the Cypriot parliament included a “solidarity fund” to bundle state assets, including future gas revenues and nationalised semi-state pension funds, as the basis for an emergency bond issue.
JP Morgan likened it to “a national fire sale”, and Eurozone paymaster Germany indicated it opposed the nationalisation of pension funds.
They were also considering a bank restructuring bill that officials said would see the country’s second largest lender, Cyprus Popular Bank, split into good and bad assets, and a government call for the power to impose capital controls to stem a flood of funds leaving the island when banks reopen on Tuesday after a week-long shutdown.
Playing with fire
There was no silver bullet, however, and Cyprus’s partners in the 17-nation currency bloc were increasingly unimpressed. It was unclear whether parliament would even vote on the bills on Friday.
“I still believe we will get a settlement, but Cyprus is playing with fire,” Volker Kauder, a leading conservative ally of German Chancellor Angela Merkel, told public television ARD.
Merkel told lawmakers that nationalisation of pension funds was unacceptable as a way to plug a hole in finances and clinch the bailout, parliamentary sources said.
Two lawmakers quoted the chancellor as saying debt sustainability and bank restructuring would have to be the core of any deal, which she called a matter of “credibility”.
They also quoted Merkel as saying: “There is no way we can accept that”, and “I hope it does not come to a crash”.
Her finance minister, Wolfgang Schaeuble, said he did not know whether Eurozone finance ministers would meet over the weekend. “I can’t say in advance if and when Cyprus will deliver results,” he said.
Cypriots have been stunned by the pace of the unfolding drama, having elected conservative President Nicos Anastasiades barely a month ago on a mandate to secure a bailout.
News that the deal would involve a levy on bank deposits, even for smaller savers, outraged Cypriots, who raided cash machines last weekend.
While EU lenders, notably Germany, had wanted larger, uninsured bank depositors to bear some of the cost of recapitalising the banks, Cyprus feared for its reputation as an offshore banking haven and planned to spread the levy to deposits under 100,000 were covered by state insurance.