Cyprus has just 72 hours left to come up with a plan to raise €5.8bn before the European Central Bank pulls emergency funding from its ailing banks, plunging the country into economic turmoil and towards an exit from the single currency.
Politicians are frantically trying to scrape together a package to raise the money and get it approved by parliament. But they are playing a delicate balancing act, anxious to please the “troika” of the EU, ECB and International Monetary Fund (IMF), while not alienating their biggest investors in Russia.
Tonight, the government was mulling restructuring the ailing Cyprus Popular Bank - widely known as Laiki - prompting it to impose a €260 daily withdrawal limit and sending customers rushing to cash machines before they ran dry. Hundreds of the bank's employees protested outside parliament, worried that the restructuring might cost them their jobs.
“What am I to do now? I have three kids and many, many loans,” one bank employee, who gave her name as Evi, told The Independent.
Splitting Laiki in two and creating a “bad bank” to deal with unpaid debt was one of a number of proposals being discussed as parliament met tonight, with MPs also debating imposing capital controls to stop money flooding out of Cyprus when the banks reopen on Tuesday.
This morning the ECB said it would continue emergency funding for the worst-hit banks until Monday. Further assistance “could only be considered if an EU/IMF programme is in place that would ensure the solvency of the concerned banks”.
The troika has offered €10bn to prop up the Cypriot economy after it was hit hard by the financial crisis in Greece, but this depends on Cyprus contributing another €5.8bn - funds EU officials are keen to see come from a tax on those with savings of more than €100,000.
Other elements of Nicosia's “Plan B” under discussion were a nationalisation of pensions, a possible contribution from Russia, and what Cypriot politicians are calling a “solidarity fund”, which investors, business people and others will be invited to contribute to. If it is not enough, Cyprus is set to become the first nation ousted from the eurozone.
“If the financial sector collapses, then they simply have to face a very significant devaluation and faced with that situation, they would have no other way but to start having their own currency,” a senior EU official told Reuters news agency.
Eurozone leaders are desperate to prevent the chaos in Cyprus spilling into other nations in the bloc. Jeroen Dijsselbloem, the head of the eurogroup of finance ministers, said that the crisis in Cyprus presented a “systemic” risk. After a conference call with fellow ministers last night, he urged Cyprus to put a new proposal on the table “as rapidly as possible”, after a plan devised in Brussels last weekend was struck down by parliament.
The Cypriot Central Bank governor insisted they would have a programme in place by Monday, and a parliament vote on the new proposals is expected today.
“The Cyprus economy is on the brink and in a fragile state. The next move may prove its salvation or destruction,” the Bank of Cyprus - the nation's largest lender - said in a statement. “It is imperative we immediately proceed with the drawing up of an agreement with the eurogroup.”
Tonight Cypriot Finance Minister Michael Sarris was still involved in talks in Moscow in an attempt to raise funds towards the bailout deal. The ratings agency Standard & Poor's, meanwhile, downgraded the nation's credit rating.