Four days to save Cyprus

Tim Wallace
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CYPRUS has four days to agree a bailout plan before it faces its banks and government going bust, a potential euro exit and economic collapse, the EU warned the troubled member state yesterday.

As politicians argue over a last-ditch deal, the troubled island’s government has established a new fund to try to raise the extra cash it needs, and extended the bank holiday until Tuesday to avoid a run on the country’s lenders.

Bank staff and customers clashed with riot police outside branches, while Popular Bank further restricted cash machine withdrawals in an effort to ensure it does not run out of money.

The central bank denied the lender is to be closed down, instead laying out plans for it to be broken into good and bad banks as part of the latest rescue package.

Eurozone leaders held emergency talks last night to decide the future of their €10bn (£8.5bn) bailout offer.

And the European Central Bank threatened to cut off liquidity support if a deal is not reached by the end of the Monday bank holiday.

“The Governing Council of the European Central Bank decided to maintain the current level of Emergency Liquidity Assistance (ELA) until Monday, 25 March 2013,” the central bank said in a statement.

“Thereafter, ELA could only be considered if an EU/IMF programme is in place that would ensure the solvency of the concerned banks.”

Cypriot officials trying to draft a fresh bailout package last night said they needed more time for consultation and would reconvene today.

Initial plans for a rescue were made up of a bailout loan plus a raid on Cypriot bank deposits.

But that proved unpalatable, leading the parliament to vote against the bailout package.

As a result the government has set up a so-called solidarity fund, seeking donations to pay the €5.8bn it needs to raise.

An alternative is to seek cash elsewhere – politicians are in talks with Russian leaders over potential funding from Moscow.

The countries have strong economic ties and Russia is believed to be interested in a deal between the two nations’ finance and energy industries. Moscow could also ease the terms of its €2.5bn loan to the island made in 2011 under any new deal. But any arrangement with a non-EU rescuer could harm the state’s relationship with the EU.

Although the chaos has not yet spread to other parts of Europe, top British regulator Martin Wheatley yesterday warned that even considering a raid on bank accounts could make savers nervous across the EU. “Deposit insurance is an important principle for us. I am concerned this may undermine confidence,” the incoming head of the new Financial Conduct Authority said.

Markets fell, with the Eurostoxx 50 down 0.92 per cent and the Spanish IBEX 35 dipping 0.77 per cent. The euro fell to $1.2901 from $1.2943.