Politicians in Cyprus were in a race yesterday to complete an alternative plan raising funds necessary for the country to qualify for an international bailout, with a potential bankruptcy just three days away.
Last night news emerged that Cyprus had reportedly agreed a deal on a controversial bank deposit levy with the European Union and the International Monetary Fund.
A senior Cypriot official said a 20 per cent levy would be imposed on deposits over €100,000 at Bank of Cyprus and a 4 per cent levy on deposits of the same amount at other banks.
The official also said a Cypriot proposal to tap nationalised pension funds would not be part of a plan to raise the €5.8bn the EU wants in return for a €10bn bailout.
Troika officials could not be reached for comment.
Earlier Finance Minister Michael Sarris said "significant progress" had been made, and that new legislation raising funds could be completed and debated in parliament as early as last night, although the timing was not certain.
Cyprus has been told it must raise €5.8bn in order to secure €10bn in rescue loans from other European countries that use the single currency, and from the IMF. The country's lawmakers soundly rejected an unpopular initial plan that would have seized up to 10 per cent of people's bank accounts, and is now seeking a way to raise the desperately needed money.
Time is running out fast. The European Central Bank has said it will stop providing emergency funding to Cyprus's banks from tomorrow if no new plan is in place. Without ECB support, Cypriot banks would collapse on Tuesday, pushing the country towards bankruptcy and a potential exit from the eurozone.
Banks have been shut all week while the plan is put into place, and are not due to reopen until Tuesday. Cash has been available through ATMs, but many run out quickly, and the troubled Laiki Bank machines are only dispensing €260 a day.
Nicosia made a significant step towards cementing a new plan on Friday night, when its lawmakers approved nine bills, including three crucial ones that will restructure ailing banks, restrict financial transactions in emergencies and set up a 'solidarity fund' that will act as the vehicle for raising funds from investments and contributions.
The bank restructuring will include the country's troubled second-largest lender Laiki, which suffered heavy losses after being exposed to toxic Greek debt.
Thousands of angry bank employees afraid of losing their jobs marched through the centre of Nicosia to the finance ministry and parliament, some with placards around their necks reading: "No to the bankruptcy of Cyprus."
They called on President Nicos Anastasiades to resign and chanted, "Anas, you took our homes away from us." Bank employee Zoei Koiachi said: "We are protesting for our jobs, and jobs of all in Cyprus."
The restructuring of Laiki and the sale of the toxic-asset-laden Greek branches of Cypriot banks is expected to cut the amount the country needs to raise to about €3bn instead of €5.8bn, officials have said.
Other banks may also be included in the restructuring, such as the country's largest lender, Bank of Cyprus, which was also exposed to Greek debt. "We have to be clear to protect the financial system and for banks to open on Tuesday with a clear picture," Mr Sarris said.
Representatives of the IMF, ECB and European Commission – collectively known as the Troika – met with Mr Sarris and other officials in the finance ministry in the morning, negotiating several new proposals, including a crucial bill that would impose some form of a tax on bank deposits.
The details were still being worked out, but officials have said that the tax could apply to deposits in the country's top two lenders, which were most exposed to bad Greek debt, or even all banks.
Troika consent is essential as they will determine whether the plan that the Cypriots come up with would meet the requirements for the bailout before it is presented to the eurozone finance ministers for final approval.
A Eurogroup meeting of the finance ministers will be held in Brussels this evening. Mr Anastasiades was also expected to fly there.
"Significant progress has been made towards an agreement, at least with the Troika, which will report to the Eurogroup," Mr Sarris told reporters after the initial morning meeting at his ministry.
"Two or three issues need further work, issues on banks, there are different calculations," he said. "There is the contribution of experts from the private sector."
The experts would hold consultations among themselves and officials were to resume negotiations with the Troika again later yesterday afternoon.