The president of Cyprus is rushing to agree a ‘plan B’ aimed at securing a bailout after parliament rejected demands for a controversial tax on savings.
The European Central Bank added a sense of urgency to the scramble for a deal, confirming it would only guarantee assistance for Cyprus only through Monday, unless a new aid programme was in place.
The near-bankrupt member of the eurozone has closed its banks until Tuesday while new proposals are debated among political leaders.
President Nicos Anastasiades set a deadline of Thursday for a new rescue plan to be agreed after his finance minister, Michalis Sarris, failed to make any progress on possible Russian aid during talks in Moscow on Wednesday.
Mr Sarris confirmed today that the discussions with Russia were continuing over investment in Cypriot banks and energy resources to reduce the eurozone nation’s debt burden.
He was also seeking an extension to an existing Russian bailout loan.
The president’s proposals, which might still include the controversial bank levy in some form, could contain “the creation of a structural investment fund, reinforced by various provident funds, real estate”, government sources suggested.
They also told the official CNA news agency that the fund “will also be linked with a bond issue and natural gas prospects”.
The troika of lenders – the European Union, European Central Bank and International Monetary Fund agreed a bailout deal last Saturday on condition Cyprus raised another 5.8 billion euros through a tax on savings.
The resulting backlash has meant that banks will have been closed for 10 straight days under the crisis measures implemented to avert a run on deposits.
The move has inevitably dealt another blow to Cyprus’s debt-laden economy, which contracted by 2.3% in 2012, having taken a battering from the global financial crisis and its exposure to Greece.
“We cannot buy, we cannot sell,” said Costakis Sophoclides, the director of a frozen goods company in Nicosia.
“A lot of my customers are hotels and restaurants… and we cannot supply them.”
Cash machines still have money available but an overall lack of liquidity has seen petrol stations close their credit card facilities and many stores refuse to accept cheques.
Amid the political and economic fall-out from the crisis in Cyprus, the value of the euro has taken a hit while stock markets in Europe have fallen as a result of the uncertainty.
The chairman of the so-called Eurogroup, made up of the eurozone nations’ finance ministers, Jeroen Dijsselbloem told the European Parliament in Brussels that the problems in Cyprus posed a systemic risk to the single currency area.