CYPRIOT politicians were working on a deal last night to secure funds needed to get a bailout package as the nation faces a race against time to avoid financial ruin.
There remained serious doubts about whether the deal would be enough to stave off collapse.
Cyprus needs to find a way to raise the 5.8bn euros (£4.9bn) by Monday to qualify for 10bn euros in rescue loans from other eurozone countries and the International Monetary Fund.
The plan needs approval from the eurozone and IMF which is yet to be forthcoming. Eurozone officials said they had not seen all the details and would have to discuss whatever final plan Cyprus presents.
“The next few hours will determine the future of this country,” said government spokesman Christos Stylianides.
Cyprus has had to come up with the new plan after lawmakers rejected a scheme that would have seized up to 10 per cent of people’s bank deposits.
The country needs to have the plan in place by Monday, when the European Central Bank has said it will cut off emergency support to the banks. That could trigger their collapse and devastate the economy, potentially pushing the country to leave the 17-country euro currency union.
Averof Neophytou, deputy leader of the ruling Democratic Rally party, said: “We are trying very hard. We may have a result this day.”
As part of the package, lawmakers were considering restructuring the country’s second largest lender, Laiki, which suffered big losses on Greek debt investments.
A large part of deposits in Laiki above the 100,000 euros (£85,000) that are insured could be confiscated. One banking official said seizures of 25 to 30 per cent were being discussed.
Officials estimate the restructuring will account for 3.6bn euros (£3bn) of the 5.8bn euros the country needs to raise.
Laiki bank’s acting chief executive, Takis Phidias, said: “I’m certain that there will be chaos after these bills are approved.”
Mr Phidias said the initial plan to seize deposits across all Cypriot accounts “would have more evenly shared the burden and certainly it would have safeguarded both large banks. I’d like to believe that there’s still time to carry out this negotiation.”
In Nicosia, worried Laiki employees gathered near parliament to protest at the bank’s restructuring, which would break the lender in two. One side would take on the soured investments to allow the stronger side to survive.
“The bank is finished, we’ll lose our jobs and I’m worried about my kids,” Laiki employee Nikos Tsiangos said, standing behind barricades and a cordon of police that have blocked the way. “They’ve brought us to the brink, the Europeans wanted to destroy our economy and they’ve done it.”
A government official indicated that a tax on deposits in other banks was also still on the table.
The Bank of Cyprus, the country’s largest lender, said it backed the idea of confiscating some percentage of all bank deposits over 100,000 euros because there were no immediate alternatives. The bank warned Cypriots that “a potential collapse of the banking sector could lead to the total loss of all deposits above 100,000 euros and the immediate sale of all collateral accompanying non-performing loans.”
Meanwhile, Cypriot efforts to clinch a contribution from Russia appeared to have failed for now.
Russia is a key player in the crisis as Russian depositors have deposited around 20bn euros in the country.
“We will only be ready to discuss various ways of support for that state only after the EU nations and Cyprus work out a final settlement,” Russian Prime Minister Dmitri Medvedev said.
Russia’s finance minister, Anton Siluanov, said the Cypriots were seeking investment from Russian companies in a Cypriot state-owned firm that will manage revenue from the island’s newfound offshore gas. The Russian investors, however, were not interested, according to reports.
Prime Minister David Cameron discussed the financial crisis in Cyprus with Russian president Vladimir Putin in a phone call yesterday.
But a Downing Street spokesman said it regarded the situation in Cyprus as “essentially a matter for the eurozone”.