ECB gives Cyprus four days to come up with plan to avoid bankruptcy

ECB gives Cyprus four days to come up with plan to avoid bankruptcy

Cyprus has four days to agree on a new plan to raise funds to avoid bankruptcy after the European Central Bank warned that it would pull the plug on the country’s banks at the start of next week if no bailout deal is agreed.

Facing the ultimatum, the Cypriot government was trying today to drum up support for a new proposal that will please MPs as well as the country’s potential international creditors.

The “Plan B” was being thrashed out after MPs soundly defeated an earlier proposal to seize up to 10% of all domestic deposits to finance a rescue.

Cypriot government officials have said the new plan includes a smaller deposit grab to ease the pain on small savers, restructuring the country’s troubled banks and raising money from domestic sources, including pension funds and subsidiaries of foreign banks active in Cyprus.

Cyprus has to find €5.8bn to unlock a €10bn bailout from its euro partners and the International Monetary Fund.

Russia is also expected to pitch in, but its contribution will be smaller than originally hoped for, Cypriot officials have said. Nearly a third of all deposits in Cyprus’ oversized banking sector are held by Russians.

Cyprus Finance Minister Michalis Sarris has been in Moscow since Tuesday seeking to forge a deal and is due to have more discussions with his Russian counterpart, Anton Siluanov, later today.

“We are discussing the subjects of gas, bank co-operation and other subjects,” Russia’s ITAR-Tass news agency quoted him as saying. Cyprus has recently discovered significant off-shore gas deposits, and major energy companies have shown an interest in tapping those resources.

Banks, which have been closed since last Friday, have been ordered shut until Tuesday to prevent a run. In central Nicosia, lines of angry people formed at some ATMs of branches of Laiki Bank, the country’s heavily indebted second-largest lender.

Although ATMs have been dispensing cash during the bank closure, some have run out.

Cyprus’ banks have enough money until Monday, the deadline set by the ECB for an international rescue to be in place. The ECB is keeping the Cypriot banks alive by allowing them to draw on emergency support from the local central bank.

Cyprus President Nicos Anastasiades was discussing the revised plan with party leaders today.

Some form of tax on domestic bank deposits was likely in the new scheme, but not at the original levels that caused such anger among savers in the country. The new proposal is thought to hit only those deposits above €100,000.

The chairman of the grouping of the 17 euro finance ministers said today any new proposal for a rescue loan programme for Cyprus must include a one-time tax on bank deposits.

Jeroen Dijsselbloem told Euro MPs the burden should be shifted toward taxing big bank deposits of about more than €100,000. He insisted the tax is “inevitable” given Cyprus’ bloated financial sector.

An amended bill that would have exempted deposits of under €20,000 in the bank was thrown out by politicians on Tuesday.

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