NICOSIA, Cyprus — Lawmakers in Cyprus approved bills Friday that aim to raise enough money to qualify the country for a broader bailout package and help it avoid financial ruin in mere days.
The European Central Bank has said it will stop providing emergency funding to Cyprus banks Monday if a rescue plan isn’t in place. Without that support, the banks would collapse Tuesday, pushing the country toward bankruptcy and a potential exit from the 17-country eurozone that could rattle the world economy.
The bills passed Friday involve restructuring the country’s banks, which lost billions on bad Greek debt; one on restricting financial transactions in times of crisis; and one that sets up a ‘solidarity fund’ into which investments and contributions will flow.
More bills to meet the total target of 5.8 billion euros ($7.5 billion) that Cyprus needs to secure an international bailout will be brought for a vote over the weekend. They include a crucial one that would impose a tax of less than 1 percent on all bank deposits, said Averof Neophytou, the deputy head of the governing DISY party.
“We are voting for the least worst option,” Neophytou said in a speech. “We owe an apology to the Cypriot people because we all share in the responsibility of bringing this place to this state.”
Earlier this week, Parliament turned down a plan that would have seized up to 10 percent of people’s bank deposits – a plan that brought protests on Cyprus streets.
Cyprus’ president, Nicos Anastasiades, will travel to Brussels today to present the revised package to creditors, other nations that use the euro and the International Monetary Fund. There has been no indication whether they will accept it.
Cyprus has been told to raise 5.8 billion euros to qualify for 10 billion euros in rescue loans from the eurozone and the IMF.
Eurozone officials said they had still not seen all the details of Cyprus’ plan.
The most important bill passed Friday is aimed at restructuring the country’s second largest and most troubled bank, Laiki, and restricting some financial transactions once banks, which have been closed since Saturday, reopen Tuesday. Worried Laiki employees gathered near parliament for a second day to protest the bank’s restructuring, which would break the lender in two.
“The bank is finished, we’ll lose our jobs and I’m worried about my kids,” Laiki employee Nikos Tsiangos said. “They’ve brought us to the brink. The Europeans wanted to destroy our economy, and they’ve done it.”
The restructuring of Laiki and the sale of the toxic-laden Greek branches of Cypriot banks is expected to cut the amount the country needs to raise to about 3 billion euros instead of 5.8, Neophytou said.
With the deposit tax back in play, Neophytou said discussions were continuing on what percentage of accounts above the guaranteed 100,000 euro ($130,000) limit would be seized, in exchange for bank bonds.
That will happen for deposits in Laiki and other banks including the country’s largest, the Bank of Cyprus, which also took significant losses on Greek debt.
Laiki bank’s acting CEO, Takis Phidias, condemned the plan. “I’m certain that there will be chaos after these bills are approved.”
Phidias said the initial plan to seize deposits across all Cypriot accounts “would have more evenly shared the burden and certainly, it would have safeguarded both large banks. I’d like to believe that there’s still time to carry out this negotiation.”
The Bank of Cyprus said it backed the idea of confiscating some percentage of all bank deposits over 100,000 euros because there were no immediate alternatives.
The bank warned Cypriots that “a potential collapse of the banking sector could lead to the total loss of all deposits above 100,000 euros and the immediate sale of all collateral accompanying non-performing loans.”
Meanwhile, Cypriot efforts to clinch a contribution from Russia appeared to have failed. Russia is a key player in the crisis, as Russian depositors have parked around 20 billion euros ($25.8 billion) in the country.
Cyprus’ finance minister, Michalis Sarris, returned to Cyprus on Friday night after spending three days in Moscow trying to drum up support.
“We will only be ready to discuss various ways of support for that state only after the EU nations and Cyprus work out a final settlement,” Russian Prime Minister Dmitry Medvedev told a news conference.
Russia’s finance minister, Anton Siluanov, said the Cypriots were seeking investment from Russian companies in a Cypriot state-owned firm that will manage revenue from the island’s newfound offshore gas. The Russian investors, however, were not interested.
Cyprus also offered stakes in some of its banks, but there were no takers in Moscow for that, either. Siluanov also said they were not discussing providing a new loan to Cyprus, as the EU has set a debt limit for Cyprus.
Europe also turned up the pressure on Cyprus. Luxembourg’s finance Minister Luc Frieden told Germany’s Inforadio that Cyprus “certainly must change a very great deal in its financial sector ..... I see among some euro states little financial room for more concessions to Cyprus.”