Cyprus revisits tax on deposits after Russian snub

Pressure grows on government to draw up plan to win EU and IMF bailout.

NICOSIA // Russia rejected Cyprus's plea for an economic lifeline yesterday, forcing the bankrupt threatened country to reconsider a tax on bank deposits.
Last night, Cyprus was in "hard negotiations" with a troika of lenders - the EU, ECB and International Monetary Fund.
The European Union has given Nicosia until Monday to raise €5.8billion (Dh27.7bn) to unlock loans worth €10bn or face being denied European Central Bank (ECB) emergency funds in a move that would collapse its economy.
EU sources have said the bloc is ready to eject Cyprus from the euro zone to prevent contagion of other debt-hit members such as Greece, Spain and Italy.
Long-time ally Russia also cold-shouldered its offer of investment proposals, leaving the country increasingly isolated even as the German chancellor Angela Merkel warned that the patience of its European partners was wearing thin.
The official CNA news agency cited an unnamed government source as saying Cyprus was looking to renegotiate a deal with the troika.
The deal includes a "haircut" on bank deposits, calling it the "best solution" under the circumstances.
Government spokesman Christos Stylianides said it was locked in "hard negotiations with the troika" and that parliament would "soon be called upon to take the big decisions", but did not elaborate.
He was referring to an emergency session of parliament expected late last night to examine a raft of eight bills aimed at raising billions of euros to secure the vital bailout.
One bill sets up an investment fund and the nationalisation of pension funds, with bonds issued against future natural gas revenues, while another prevents large outflows of capital from the country when banks reopen.
The "haircut" proposal was abruptly knocked back by parliament on Tuesday, in a resounding "no" vote that jolted global markets and raised fears of a debt contagion in the euro zone.
But Cyprus's chamber of commerce and employers' federation called on MPs to reconsider their opposition to a tax on bank deposits above €100,000 euros to rescue the island's economy.
"The current situation is now affecting all sectors of the economy such as services, trade, industry and construction, it is no longer limited to the areas of financial services," they warned.
"Businesses can no longer operate and there is a visible risk that many will be forced to temporarily suspend operations."
The Bank of Cyprus and Popular Bank, the island's two largest banks which are both in danger of collapse, also came out in favour of a rethink on the levy yesterday.
Cyprus's hopes of an economic lifeline from Russia proved to be illusory, and finance minister Michalis Sarris left Moscow yesterday after two days of talks without clinching an agreement.
Russian officials said two major state-owned energy firms had turned down deals proposed by Sarris to fill the €5.8bn shortfall left by the EU-IMF bailout offer.
"Our investors examined this issue and showed no interest," Russian news agencies quoted finance minister Anton Siluanov as saying.
The Russian prime minister Dmitry Medvedev said later that Moscow "has not closed the door" on possible future assistance but would discuss this only after Cyprus had reached a deal with the EU.
The third biggest Greek bank, Piraeus Bank, is to acquire the Greek subsidiaries of the Bank of Cyprus and the Popular Bank to ensure the stability of their operations in Greece, a banking source said.
With the absorption, the subsidiaries become Greek banks and eligible for recapitalisation funds made available by the second bailout to Greece, rather than requiring Cyprus bailout money.
* Agence France-Presse