Cyprus works on Plan B to stave off bankruptcy

Employees of Bank of Cyprus hold a banner that reads ''All together...we can'' during a rally outside headquarters as the bank remains closed for second day in Athens on March 20, 2013. Photo:AP

Cypriot officials rushed on Wednesday to find a new plan to stave off bankruptcy, a day after Parliament rejected an initial scheme to contribute to the nation’s bailout package by seizing up to 10 per cent of people’s bank savings.

Tuesday’s decisive rejection of the plan to take a slice of all deposits above 20,000 euros (USD 25,888) has left the country’s bailout in question. Without the bailout, the Cypriot banking sector would collapse, devastating the country’s economy and potentially causing it to leave the euro.

That could roil global financial markets as well as endanger deposits in the country even further.

Government spokesman Christos Stylianides said a meeting was underway at the central bank to discuss an alternative plan for raising funds, but also for reducing the 5.8 billion euros (USD 7.5 billion) that must be found domestically.

President Nicos Anastasiades met with the representatives of his country’s potential creditors, the International Monetary Fund, European Central Bank and European Commission but issued no statement on the result. The three, collectively known as the troika, must sign off on any Plan B the Cypriots come up with if it is to be approved as part of the bailout.

The ECB, which is keeping the Cypriot banking sector alive by allowing the central bank to extend emergency support, has said it would end that aid if there was no bailout deal.

Under the initial bailout plan conceived in Brussels last weekend, other euro-zone countries and the IMF would give Cyprus 10 billion euros (USD 12.9 billion) in rescue loans if the country raised 5.8 billion euros (USD 7.5 billion) through the bank deposit seizures.

The central bank’s deputy governor, Spyros Stavrinakis, said no decision had been taken on when banks, which have been shut since the weekend, would reopen, and that a new plan has not yet been presented to the country’s euro partners and IMF.

The new plan must also win approval from lawmakers.

In a two-pronged approach to the crisis, Finance Minister Michalis Sarris was in Moscow for meetings with his Russian counterpart. Russia could play a key role in any alternative package that may emerge. Russians are believed to account for just under a third of Cyprus’s 68 billion euro bank deposits.