Cyprus president in crisis talks after bailout spurned

NICOSIA (AFP) - Cyprus President Nicos Anastasiades was on Wednesday meeting party leaders in a frantic search for a viable plan B after MPs rejected the terms of an EU bailout aimed at saving Cyprus from bankruptcy.

The emergency meeting at the presidential palace was also being attended by Central Bank governor Panicos Demetriades and a member of the troika of the European Union, European Central Bank and International Monetary Fund, state television said.

Under the bailout deal reached at the weekend, the troika was to provide Cyprus with 10 billion euros (S$16 billion) on condition that Nicosia raises another 5.8 billion euros.

It called for a levy of up to 9.9 per cent to be slapped on all Cyprus bank deposits, an unprecedented move that triggered outrage among savers and raised fears that other financially crippled EU states like Italy and Spain could be next.

The Cyprus government backtracked, and on Tuesday dropped the proposed tax on savings below 20,000 euros, while keeping it at 6.75 per cent for deposits of 20,000-100,000 euros and 9.9 per cent for those above 100,000 euros.

But that too was heavily criticised by the speaker as amounting to "blackmail" before it was flatly rejected in parliament, in a vote that plunges the eurozone into uncertainty and leaves Cyprus scrambling for other sources of financing.

State television said one option being looked at to raise the 5.8 billion euros was the nationalisation of the provident funds of state and semi-state institutions, which could raise around 3 billion euros.

Another option was a shrinking of the banking sector, possibly merging the island's two biggest banks into one, so the amount of recapitalisation needed would be lower.

It said Mr Anastasiades had relayed this message to German Chancellor Angela Merkel in a phone call late on Tuesday.

Cyprus banks were left heavily exposed to the Greek debt crisis, and their failure would leave the country on the verge of bankruptcy and in danger of going into default.

That in turn would put immense pressure on the euro and once again place the unity of the European Union in doubt.

Russian media have speculated that one proposal on the table in Moscow was for its natural gas giant Gazprom to infuse Cypriot banks with cash in exchange for interest in the island's offshore energy fields.

Gazprom has refused to confirm that this offer - also reported by Cypriot media - is under discussion.