NICOSIA, Cyprus - Cypriot politicians raced Thursday to find a new financial rescue plan ahead of a Monday deadline and one of the country’s biggest banks put a cap on daily withdrawals after people rushed to claim their cash from ATMs.
Cyprus has been told it must raise $7.5 billion if it is to receive $12.9 billion from its fellow eurozone countries and the International Monetary Fund. If it does not find a way by Monday, the European Central Bank said it will cut off emergency support to the banks, letting them collapse.
That would throw the country into financial chaos and, ultimately, cause it to leave the eurozone, with unpredictable consequences for the region and world markets.
Several new bills were being submitted to Parliament on Thursday night, including restructuring the banking sector, setting up an “Investment Solidarity Fund” and restricting banking transactions in times of crisis.
Together, they will make up at least part of the alternative plan Cyprus hopes will secure it bailout money. The lawmakers said the bills would be discussed and potentially voted on this morning.
The pressure has grown since lawmakers Tuesday rejected an earlier proposal to seize up to 10 percentof people’s bank accounts. Banks have been shut since last weekend to avoid a run and will not open until Tuesday at the earliest.
Uncertainty was growing among Cypriots as the deadline approached and reports spread that the country’s second-largest bank would be restructured.
Queues of 40 to 50 people formed at the ATMs of Cyprus Popular Bank, or Laiki, which responded by capping daily withdrawals at $340 per person, down from $906. Although ATMs have been functioning, many often run out of cash.
“We need cash. We have families, children, grandchildren and expenses, and the banks have been closed since Saturday,” said Andri Olympiou after withdrawing money from a Laiki branch in Nicosia, the capital.
The central bank governor, Panicos Demetriades, urged lawmakers to vote immediately on a legal framework bill to rehabilitate Cyprus’ banking sector. The bill includes restructuring Laiki.
Officials said the restructuring would split Laiki into two, with a “bad bank” taking over its soured investments, and a “good bank” retaining the healthy ones.
Setting up a bad bank is a strategy that’s been used before in Europe’s financial crisis, by Ireland and Spain. A bad bank is tasked with recovering as much money as possible from the investments.
Without the restructure, Laiki would collapse and drag down the rest of the banking system and the economy, Demetriades said.
Eurozone finance ministers held a phone conference Thursday night to discuss the situation.
Bank employees protested outside Parliament, chanting “Cypriots wake up! We’re not selling Cyprus!” Scuffles broke out with police wearing riot gear and the main road was blocked to traffic.
President Nicos Anastasiades held a series of meetings with political party leaders to consider a range of measures that could raise the necessary funds.
The “Plan B” will likely include restructuring Cyprus’ troubled banks, some form of Russian help, dipping into pension funds and taking up an offer from Cyprus’ wealthy Orthodox church to contribute. Some form of tax on bank deposits is also possible.
One new development Thursday was the government’s announcement of its intention to create a so-called “Investment Solidarity Fund.” That bill and the bank restructuring bill were sent to Parliament on Thursday night for discussion. It was unclear when there might be a vote.
The fund is intended to appeal to “the patriotism of Cypriots” and draw on contributions from ordinary Cypriots, businessmen and foreign investors, said Demetris Syllouris, head of a small right-wing party who was in a meeting with the president where the “Plan B” was being hashed out.
A “Plan B” is needed after lawmakers soundly defeated the earlier proposal to seize up to 10 percent of all domestic deposits to raise the $7.5 billion.
“We will have a program of support for Cyprus by Monday,” Demetriades said earlier in the day.
One major lender, Bank of Cyprus, appealed to the government and politicians to reach a plan that the eurozone partners would accept, clearing the way for the bailout.
“The Cypriot economy is in a marginal and fragile state. The next move could prove salutary or disastrous,” the bank said in a statement. “It is imperative we immediately proceed with the drawing up of an agreement with the Eurogroup.”
Russia is likely to pitch in with the new plan, though its contribution will be smaller than originally hoped for, Cypriot officials have said. Nearly a third of the $88 billion in deposits in Cyprus’ banking sector are held by Russians.
Cyprus’ finance minister, Michalis Sarris, has been in Moscow since Tuesday seeking to forge a deal. Russia’s help would not be a loan, but rather some form of an investment, he said.
Russia news agency ITARTass quoted Sarris as saying “we are discussing the subjects of gas, bank cooperation and other subjects.” Cyprus has recently discovered significant offshore natural-gas deposits, and major energy companies have shown an interest in tapping those resources.
In Brussels, the head of the 17-nation eurozone’s finance ministers, Jeroen Dijsselbloem, said that a one-time tax on bank deposits was “inevitable” given Cyprus’ oversize financial sector. He argued, however, that the burden should be shifted toward taxing big bank deposits of more than about $129,432.
An amended bill that would have exempted deposits of under about $25,812 in the bank was turned down by lawmakers Tuesday.
While Russia rebuffed Cyprus’s request for a bailout loan, it will consider making investments in the Cypriot energy industry, Sarris said in an interview broadcast on Antenna TV. Cyprus claims gas reserves of 60 trillion cubic feet. That’s about 21 years of U.K. demand, according to BP Plc’s statistical review.
European leaders “should certainly avoid that Russians take their hold,” said De Grauwe. “Western Europe and the eurozone have the financial clout to do so.
Information for this article was contributed by Elen Becatoros and Menelaos Hadjicostis of The Associated Press and Capo Mc-Cormick of Bloomberg News.
Business, Pages 27 on 03/22/2013