Cyprus has 4 days to find bailout solution

NICOSIA, Cyprus — Cyprus has four days to agree on a new plan to raise funds to avoid bankruptcy, with the European Central Bank warning Thursday it will pull the plug on the country’s banks at the start of next week if no solution is found.

Facing the ultimatum, the Cypriot government was racing to cement a new package that will please both Parliament and the country’s potential international creditors.

Party leaders met with the president to consider a range of measures that could raise the 5.8 billion euros ($7.5 billion) needed to qualify for 10 billion euros ($12.9 billion) in rescue loans from the eurozone partners and the International Monetary Fund.

One measure agreed on Thursday was the creation of an “Investment Solidarity Fund” that would appeal for donations from ordinary Cypriots, businessmen and foreign investors, said Demetris Syllouris, head of a small right-wing party who was in the meeting with the president.

The legal and technical details were still being worked out, and the bill would be reviewed by the Cabinet Thursday evening, government spokesman Christos Stylianides said.

A “Plan B” was being hashed out after lawmakers soundly defeated an earlier proposal to seize up to 10 percent of all domestic deposits to raise the 5.8 billion euros.

The rest of the “Plan B” will include restructuring Cyprus’ troubled banks, some form of Russian help, dipping into pension funds and taking up an offer from Cyprus’ wealthy Orthodox church to contribute. Some form of tax on bank deposits is also possible.

“We will have a program of support for Cyprus by Monday,” central bank governor Panicos Demetriades said as he left a meeting with the country’s president and political party leaders.

However, it seemed unlikely a deal would be reached in time for a vote during Parliament’s regular Thursday session.

“Today, no, I don’t think so,” said Averof Neophytou, deputy head of the governing DISY party, when asked if a deal could be reached and voted on by the evening.

Russia is likely to pitch in, though its contribution will be smaller than originally hoped for, Cypriot officials have said. Nearly a third of the 68 billion euros ($88 billion) in 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.

Russia’s help would not be a loan, but rather some form of an investment, Sarris told Cypriot state broadcaster CyBC on Thursday. He is due to meet with his Russian counterpart, Anton Siluanov, and the Russian energy minister later in the day.

Russia news agency ITAR-Tass quoted him as saying that “we are discussing the subjects of gas, bank cooperation and other subjects.” Cyprus has recently discovered significant offshore gas deposits, and major energy companies have shown an interest in tapping those resources.

With indications that the new plan will include restructuring Cyprus’ troubled second-largest lender Laiki Bank, angry lines of people formed at some of the bank’s ATMs in the center of the capital.

Banks have been shut since last Friday, and are to remain so until next Tuesday to prevent a run. Although ATMs have been functioning, many often run out of cash.

Cyprus’ troubled banks have enough money until Monday after the European Central Bank said it will switch off its lifeline on Monday unless an international rescue is in place. The ECB is keeping the Cypriot banks alive by allowing them to draw on emergency support from the local central bank.

In Brussels, the head of the 17-nation eurozone’s finance ministers Jeroen Dijsselbloem, said the ECB was doing “as much as they can within their mandate.”

He also told lawmakers at the European Parliament that a one-time tax on bank deposits was “inevitable” given Cyprus’ oversize financial sector, though said the burden should be shifted toward taxing big bank deposits of about more than 100,000 euros.

An amended bill that would have exempted deposits of under 20,000 euros in the bank was turned down by lawmakers Tuesday.