Cypriot leaders scramble to create a fresh rescue plan

Cypriot banks will remain closed until Tuesday, the government confirmed yesterday, as emergency talks on a new bailout proposal ended last night without agreement.

Discussions between Cypriot finance minister Michael Sarris and Russian authorities in Moscow yesterday yielded no concrete proposals, leaving Cypriot officials scrambling to work out an alternative plan to the EU-IMF deal rejected by the Parliament on Tuesday.

Talks between political leaders will resume today.

President Nikos Anastasiades held meetings with political party leaders, a technical team from the troika, and cabinet ministers to consider elements of a new proposal for raising the €5.8 billion demanded by the EU as the price of a €10 billion bailout package. Central bank chief Spiros Stavrinakis, who conferred with the troika team, said "several" other plans were under consideration.

Among them are a proposal to nationalise state pension funds and a reworking of the tax on deposits proposal contained in the original bailout agreement. "Tonight we won't sleep, we will find a solution," said Averoff Neofytou, deputy president of Anastasiades' party. "We owe it to future generations."

Buying time
Amid concerns about a run on deposits once banks reopen, the government extended the bank holiday until Tuesday, buying authorities more time to come up with a plan acceptable to the troika of international lenders.

The ECB is keeping Cypriot banks afloat with emergency liquidity funding, but has warned it will withhold funding if banks are deemed to be insolvent.

ECB executive board member Jorg Asmussen said the solvency of Cypriot banks "cannot be assumed" if an aid plan is not agreed "soon".

Troika officials were understood to be in discussions with Cypriot authorities last night on several capital-control measures to guard against a run on banks.

With Cypriot residents facing a week-long bank closure, ATMs were still dispensing limited amounts of cash while shops accepted credit and debit cards.

Troika's hand strengthened
There is widespread fear that the political deadlock in Cyprus – and the unprecedented proposal to tax depositors as part of a bailout package – could reignite the euro zone debt crisis that has been less fraught for the last nine months.

But the relatively benign reaction on markets appeared to strengthen the troika’s hand somewhat in the discussions, a position underscored by the lack of a firm proposal emerging from Russia, whose citizens have substantial deposits in Cypriot banks.

While negotiations between the Cypriot finance minister and Russian officials continue today, Mr Sarris emerged from yesterday’s meetings empty-handed.

As well as seeking a lower interest rate and repayment extension on a 2011 Russian loan of €2.5 billion, Mr Sarris also sought an additional loan of €5 billion.

Meanwhile, Minster for Agriculture Simon Coveney said Ireland would "under no circumstances" introduce a Cypriot-style levy on deposits.

Additional reporting: Daniel McLaughlin and Derek Scally