(Reuters) - Cyprus extended a bank lockdown to next week and considered nationalizing pension funds on Wednesday, scrambling to avert a financial meltdown after rejecting the terms of a bailout from the European Union and turning to Russia for a lifeline.
With crisis talks dragging into the night, the ruling party, Democratic Rally, warned time was running out:
"We don't have days or weeks, we have only hours to save our country," deputy leader Averos Neophytou told reporters.
Banks, shut since the weekend, are to stay closed for the rest of the week and so not reopen till Tuesday after a holiday weekend, a government official told Reuters, extending the misery of Cypriot businesses already feeling the pinch.
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 Cyprus.
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.
The EU demand has exposed tensions with Moscow over how to keep Cyprus afloat. Russian Prime Minister Dmitry Medvedev said the bloc had behaved "like a bull in a china shop" and compared its proposals, which would force Russian customers to contribute to the rescue of Cypriot banks, to Soviet-era confiscations.
But the European Central Bank kept the pressure on, warning that it would have to pull the plug on Cyprus 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 program is not agreed on soon, which would allow for a quick recapitalization of the banking sector," Joerg Asmussen, the bank's chief negotiator on Cyprus, told German weekly Die Zeit in an interview late on Tuesday.
Despite the looming threat of default and a banking collapse, Cypriots on Tuesday 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.
LEVY STILL IN PLAY?
The government said a "Plan B" was in the works, with conservative President Nicos Anastasiades - elected last month on a mandate to secure a bailout - locked in meetings with party leaders, ministers and officials from the troika of EU, ECB and International Monetary Fund lenders.
Lawmaker Marios Mavrides told Reuters one option under discussion was to nationalize pension funds of semi-government corporations, which hold between 2 billion and 3 billion euros.
An opposition politician present at the talks said: "The idea is we can get the pension funds of organizations 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 Russian hands."
Reuters
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