Employees of the Bank of Cyprus take part in a rally, in
solidarity with crisis-hit Cypriots, outside the
headquarters of the bank in Athens. REUTERS/John Kolesidis
Cyprus ordered banks to stay shut until next week as the
government scrambled to avert a financial meltdown after
rejecting the terms of a bailout from the European Union and
turning instead to Russia for a lifeline.
"We don't have days or weeks, we have only hours to save our
country," Averos Neophytou, deputy leader of the ruling party
Democratic Rally, told reporters as crisis talks in Nicosia
dragged into the evening. Banks are to stay shut for the rest
of the week and so not reopen till Tuesday after a holiday
With Finance Minister Michael Sarris in Moscow, Russia's
finance ministry said Cyprus had sought a further 5 billion
euros, on top of a five-year extension and lower interest on
an existing 2.5-billion euro loan from Moscow. Russia has a
special interest, since many of its citizens keep savings in
In a vote on Tuesday, the island's tiny legislature threw out
a proposed tax on bank deposits in exchange for a 10-billion
euro bailout from the EU, a stunning rejection of the kind of
strict austerity accepted over the past three years by
crisis-hit Greece, Portugal, Ireland, Spain and Italy.
Facing the prospect of a run on banks, a government official
said lenders would remain shut on Thursday and Friday,
leaving next Tuesday, March 26, the next normal working day.
Greece said Greek branches of Cypriot banks would also stay
Businesses in Cyprus are already feeling the pinch, with
people reduced to limited withdrawals from cash machines. The
island's banking sector has been crippled by its exposure to
bigger neighbour Greece, where Europe's debt crisis began.
The European Central Bank's chief negotiator on Cyprus, Joerg
Asmussen, said the ECB would have to pull the plug on Cypriot
banks unless the country took a bailout quickly.
"We can provide emergency liquidity only to solvent banks and
... the solvency of Cypriot banks cannot be assumed if an aid
programme is not agreed on soon, which would allow for a
quick recapitalisation of the banking sector," Asmussen told
German weekly Die Zeit in an interview late on Tuesday.
Cypriots had balked at EU demands for a levy on bank deposits
to raise 5.8 billion euros, an unprecedented measure that
opponents said would have violated the principle behind an
EU-wide guarantee on deposits of up to 100,000 euros.
Cyprus Energy Minister George Lakkotrypis was also in Moscow,
officially for a tourism exhibition, but fuelling talk that
access to untapped offshore gas reserves could be on the
table as part of a deal for Russian aid.
"We had a very honest discussion. We've underscored how
difficult the situation is," Sarris told reporters after
talks with his Russian counterpart Anton Siluanov in Moscow.
"We'll now continue our discussion to find the solution by
which we hope we will be getting some support," he said.
"There were no offers, nothing concrete."
Moscow has its own interests in ensuring the survival of
banks in Cyprus, a haven for billions of euros squirreled
abroad by Russian businesses and individuals - a factor, too,
in the reluctance of Germany and other northern euro zone
states to bail out Cypriots without a contribution from bank
Speculation was rife over the shape Russian help might take.
Government spokesman Christos Stylianides denied a Greek
media report that Cyprus had reached a deal for Russian
investors to buy the island's second largest bank, Cyprus
Popular, which was taken over by the state last year.
The proposed levy on deposits would have taken nearly 10
percent from accounts over 100,000 euros. Smaller accounts
would also have been hit, although the government proposed
softening the blow to spare savers with less than 20,000
German Chancellor Angela Merkel, whose country is Europe's
main paymaster, said it was up to the Cypriot government to
come up with an alternative proposal but it was fair to
expect those with savings over 100,000 euros - the normal
limit for state deposit insurance - to contribute to a
The EU has a track record of pressing smaller countries to
vote again until they achieve the desired outcome.
Nicosia was eerily quiet on Wednesday, and there was evidence
the bank closure was slowing trade.
"Things won't be so bad as long as people can withdraw from
ATMs but if they go too there will be a huge problem," said
Titos Pitsillides, 50. Several petrol stations were refusing
credit cards, insisting on payment in cash.
Government spokesman Christos Stylianides said a "Plan B" was
in the works.
President Nicos Anastasiades, a conservative elected just
last month with a mandate to secure a bailout, held meetings
with party leaders, his cabinet and officials from the
"troika" of lenders from the EU, ECB and International
While taxing even small savers was politically explosive, the
Cypriot government had balked at sparing them by imposing a
higher tax on big depositors - fearing for an offshore
banking business that accounts for a big share of its
Lawmaker Marios Mavrides told Reuters one option under
discussion was to nationalise pension funds of
semi-government corporations, which hold between 2 billion
and 3 billion euros.
An opposition politician present at Wednesday's crisis talks
said: "The idea is we can get the pension funds of
organisations like the Cyprus Telecoms Organisation and the
Electricity Authority, maybe some others as well, and raise
two to three billion euros.
"If we raise half of the money then maybe we could top up to
the 5.8 billion euro amount by passing the Cypriot banks into
The crisis is unprecedented in the history of the divided
east Mediterranean island of 1.1 million people, which
suffered a war with Turkey and ethnic split in 1974 in which
a quarter of its population was displaced. The
Turkish-populated north considers itself a separate country,
recognised only by Turkey.
While Brussels has emphasised that the tax measure was a
one-off for a country that accounts for just 0.2 percent of
Europe's output, fears have grown that savers in other,
larger European countries might be spurred to withdraw funds.
With Sarris and Lakkotrypis in Moscow, there was mounting
speculation that Russian oil and gas giant Gazprom had mooted
its own assistance plan in exchange for exploration rights to
Cyprus's offshore gas deposits.
"We at Gazprom did not offer Cyprus anything," Gazprom's
spokesman, Sergei Kupriyanov, said.
A senior source in the "troika" said dealing with Cyprus was
even more frustrating than protracted wrangling with Greece.
"The Greeks wanted to cheat on you all the time, but they
knew what they wanted," the source told Reuters.
"The Cypriots are leaving us really confused."