Clock ticking as Cyprus looks to avoid banking meltdown

The heads of the European Union, the European Central Bank and the International Monetary Fund all met President Anastasiades with Cyprus facing a deadline today to avert a collapse of its banking system.

The European Central Bank has threatened to stop providing emergency funding to Cyprus’s banks after today if there is no agreement on a way to raise 5.8 billion euro (£5bn) needed to get a 10 billion euro (£8.5bn) rescue loan package from the International Monetary Fund and the other European countries that use the euro currency.

If Cyprus fails to secure a bailout, some of its banks could collapse within days, rapidly dragging down the government and possibly forcing the country of around one million out of the eurozone.

Analysts say that could threaten the stability of the currency used by more than 300 million people in 17 EU nations.

Despite that risk, Europe’s biggest economy maintained a hard line on the negotiations.

German finance minister Wolfgang Schaeuble said: “if possible we want to avoid seeing Cyprus sliding into insolvency”.

But he cautioned that he is “known for not giving in to blackmail, by nobody and nothing”.

A plan agreed in marathon negotiations earlier this month called for a one-time levy on all bank depositors in Cypriot banks.

However, the proposal ignited fierce anger among Cypriots and failed to garner a single vote in the Cypriot parliament.

The idea of some sort of deposit grab has returned to the fore after Cyprus’s attempt to gain Russian financial aid failed last week, with deposits above 100,000 euro (£85,262) at the country’s troubled largest lender, Bank of Cyprus, possibly facing a levy of up to 25 per cent.

To avoid bankruptcy or the collapse of its banking system, Cyprus needs significantly more than the 10 billion euro international creditors are willing to lend it.

There is fear that more loans would raise the country’s debt to an unsustainable level.

For that reason, the country has been told it must raise the additional money.

Cypriot banks have been 
closed since last week while the plan was being worked out, and are not due to reopen until tomorrow.

Cash has been available through ATMs, but many have run out quickly.