Cyprus draws up 'Plan B' for bailout - officials

Wednesday 20 March 2013 22.40
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The ECB has threatened to end emergency lending assistance for teetering Cypriot banks
The ECB has threatened to end emergency lending assistance for teetering Cypriot banks
German Chancellor Angela Merkel said her country wants a solution for Cyprus
German Chancellor Angela Merkel said her country wants a solution for Cyprus
Eurozone leaders said the bailout offer still stood, provided the conditions were met
Eurozone leaders said the bailout offer still stood, provided the conditions were met
A Cypriot demonstrator holds a banner during a protest against a EU bailout deal outside parliament
A Cypriot demonstrator holds a banner during a protest against a EU bailout deal outside parliament

The Cypriot government has drawn up a new plan to raise funds needed for the country to secure a crucial international bailout, three top government officials said tonight.

The new bill could be voted on as early as tomorrow evening, one of the officials said.

Parliament had resoundingly rejected the previous plan, which involved seizing up to 10% of people's bank deposits.

The rejection threw Cyprus' entire bailout into question.

It raised the possibility that the country's banks could collapse, the government would be unable to pay its bills and Cyprus could be forced out of the euro.

The officials said the new "Plan B" includes some Russian assistance and a smaller bank deposit tax.

The officials all spoke on condition of anonymity because the plan was not yet being made public.

One official said Plan B was ready to be presented to party leaders at a meeting tomorrow morning.

The plan includes "some form" of Russian help, the official said, but expectations should not be high as Moscow had made it clear it did not want to damage relations with the European Union.

Cyprus has turned to long-time ally Russia for help, with Finance Minister Michalis Sarris flying to Moscow yesterday for meetings and saying he would remain there as long as was required.

Nearly a third of the total amount of deposits in Cypriot banks is believed to be held by Russians.

The idea that authorities could dip directly into people's bank accounts had outraged Cypriots and Russians alike.

The European Union, and Germany in particular, have long argued that they should not have to ask their own taxpayers to contribute to bailing out a country when it was Russian oligarchs who would benefit.

A second government official said Plan B still includes some tax on deposits, but at a percentage definitely lower than those originally proposed.

The official said the EU had given Cyprus until Monday to come up with an alternative, so speed was of the essence.

Cypriots outraged over bailout terms

Not a single Cypriot lawmaker voted for the EU bailout, which included a proposed levy that would have taken nearly 10% from accounts over €100,000.

Smaller accounts would also have been hit, although the government proposed softening the blow to spare savers with less than €20,000.

It was the first time a national legislature had rejected the conditions for EU assistance, after three years in which lawmakers in Greece, Ireland, Portugal, Spain and Italy all accepted biting austerity measures to secure aid.

Outraged Cypriots had emptied cash machines at the weekend after news broke that they would be taxed on their savings to raise €5.8bn in exchange for the bailout.

The ECB has threatened to end emergency lending assistance for teetering Cypriot banks, crippled by their exposure to the financial crisis in neighbouring Greece.

However, eurozone leaders said the bailout offer still stood, provided the conditions were met.

German Chancellor Angela Merkel said her country wants a solution for Cyprus.

But she insisted there must be a plan to repair the country's bloated banking sector.

Meanwhile, Minister for Agriculture Simon Coveney said during questions in the Dáil that he was as "clear as crystal" that the Government would not target Irish bank deposits.

Fianna Fáil leader Michael Martin had criticised Eurogroup finance ministers for the bailout deal.

He said the violation of the principle that assured deposits are safe should never have happened.

Mr Martin said the European Stability Mechanism (ESM) should be used to resolve the Cypriot debt crisis.

He called on Minister for Finance Michael Noonan to convene an emergency meeting of the Eurogroup to deal with the situation.

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