Cyprus hammers out Plan B after MPs snub bailout deal

Debt-hit Cyprus scrambled on Wednesday to draw up a Plan B to secure an EU bailout after MPs rejected an unprecedented bank deposit levy, while also seeking to limit the amount of money leaving the island. In an early setback, however, Finance Minister Michalis Sarris failed to reach progress after two rounds of talks in Moscow on assistance from Russia, one of the key planks of Plan B. And in Brussels, the European Commission warned that any new bailout must guarantee that the island's debt burden is sustainable a signal it expects Cyprus to meet a key condition of raising 5.8 billion euros ($7.47 billion) from its own resources. With the banking sector at a standstill and fears growing of a forced eurozone exit, President Nicos Anastasiades huddled with leaders of political parties and financial experts, trying to formulate an alternative plan that would help Cyprus confront its worst crisis since the 1974 Turkish invasion. Anastasiades was later Wednesday to preside over a cabinet meeting to discuss the latest developments, the presidency said. Options being considered by the authorities, local media reported, include raising money from domestic sources including provident funds, and restructuring the teetering banking sector to reduce its debt exposure. State radio said the Cypriot authorities were also working on bills, that would need to be passed by parliament, to restrict the outflow of cash from the island once the banks reopen. The legislation would also split the sector into "good banks" and "bad banks", it said. Commentators said the legislation would need to be in place before banks, which have been closed since the weekend to prevent a run on accounts, reopen their doors. Although no official announcement has been made, few expect banks to reopen before next Tuesday, after a scheduled bank holiday on Monday. While money is still available from ATM cash points, the dwindling liquidity in the market has seen fuel stations close their credit card facilities and many stores are refusing to accept cheques. Amid all the uncertainty, the head of the powerful Orthodox Church in Cyprus, Archbishop Chrysostomos II, offered to help by putting church assets at the government's disposal. The church is the largest landowner on the island and also has stakes in businesses including the country's Hellenic Bank, with total assets estimated to run into tens of millions of euros. "Parliament's 'no' vote sent a strong message that you can't mess around with the little guy," the archbishop told reporters after he met Anastasiades to make his offer. He was referring to a parliamentary meeting Tuesday night at which lawmakers flatly rejected a measure that would have slapped a one-time levy of up to 9.9 percent on bank deposits as a condition for an EU-led 10-billion-euro ($13-billion) loan. The 5.8 billion euros the proposal would have raised was crucial to Nicosia getting the full rescue. Following the vote, in which ruling party MPs abstained, Cyprus turned to Russia, with Anastasiades sending Sarris to Moscow to woo new assistance and to seek an easing of the terms of a 2.5-billion-euro loan Moscow afforded Nicosia in 2011. Russians - many of them wealthy tycoons seeking to avoid taxes back home - hold between a third and half of all Cypriot deposits and have $31 billion in private and corporate cash buried in the island's teetering banks. Sarris was upbeat on Wednesday after meeting his Russian counterpart Anton Siluanov before talks with First Deputy Prime Minister Igor Shuvalov about a possible new Moscow loan, describing it as a "very good beginning." But a Russian government source told AFP that a second round of talks with Shuvalov - a close Putin aide who oversees the financial sector - produced no results. Reports said the Moscow talks will continue on Thursday. Russian officials have signalled that the loan's extension has been jeopardised by Cyprus's refusal to inform Moscow in advance about the possibility of it slapping a levy on deposits. Amid feverish speculation about Russian involvement, the Cyprus government was forced to deny reports that Russian investors were buying the Cyprus Popular Bank.