A key meeting of Eurogroup (eurozone finance ministers) to finalize a crucial bailout for Cyprus has been delayed as talks to hammer out an agreement overran.
Cypriot President Nicos Anastasiades is locked in bailout talks with EU, European Central Bank and IMF leaders in Brussels.
The finance ministers must decide on Sunday whether or not to approve the bailout.
Cyprus needs to raise 5.8 billion euros to qualify for a 10 billion euro EU bailout and avoid bankruptcy.
A eurozone official said the Eurogroup meeting had been rescheduled for about 20:00 local time from 18:00 because talks with Cypriot officials ahead of those discussions had overrun.
In another development on Sunday, Bank of Cyprus – the island’s biggest lender – further limited cash machine withdrawals to 120 euros a day.
With queues growing outside cash machines across the island, the second biggest lender, Laiki (Popular) Bank, also lowered its daily limit to 100 euros, Cyprus News Agency reported. The bank’s previous limit had been 260 euros per day.
Banks have been closed since Monday and many businesses are only taking payment in cash.
Cypriot President Nicos Anastasiades is locked in bailout talks with EU, European Central Bank and IMF leaders in Brussels
In the run-up to the crunch talks in Brussels, the EU’s commissioner for economic affairs Olli Rehn said Cyprus had only “hard choices left” and must agree terms on Sunday.
According to a source close to the negotiations, the rescue plans – as they stand – involve splitting Laiki Bank into “good” and “bad” banks.
Good assets would be merged with Bank of Cyprus and the toxic assets will stay in Laiki. Administrators will then be appointed to liquidate those assets. The bank will not be closed but will be hugely reduced in size.
The source said a 20% levy would be imposed on deposits over 100,000 euros in Bank of Cyprus in exchange for shares in the bank.
A 4% levy would then be imposed on deposits of more than 100,000 euros in other banks. This would need to be approved by parliament but enough MPs have already given their backing to ensure it would pass.
The changes would cut Cyprus’s banking sector by between a third and a half.
Cyprus’ parliament rejected a bank levy on small and large deposits earlier this week, but a levy limited to large deposits is said to be back in consideration following pressure from Brussels and Berlin.
The levy that was rejected would have taken 6.75% from small savers and 9.9% from larger investors. It caused widespread anger among ordinary savers in Cyprus.
Cyprus needs the approval of the “troika” – the IMF, ECB and European Commission – in order to present a rescue plan to eurozone ministers.
If a deal on an alternative agreement fails, the ECB says it will cut off funds to the banks, meaning they would collapse, possibly pushing the country out of the eurozone.
“The negotiations are at a very delicate stage,” said Cypriot government spokesman Christos Stylianides.
“The situation is very difficult and the time limits are very tight.”
Olli Rehn said: “It is essential that an agreement is reached by the Eurogroup on Sunday evening. This agreement then needs to be swiftly implemented by Cyprus and its eurozone partners.”
“Unfortunately the events of recent days have led to a situation where there are no longer any optimal solutions available,” he added.
He said it was clear that the near future for Cyprus would be “very difficult” but that the EU stood ready to help.
There is concern on the island that a levy on large-scale foreign investors, many of whom are Russian, would damage its financial sector.
But leading Cypriot bankers have urged parliament to accept a levy, with small savers exempted.
Correspondents say Germany has pushed hard for a levy on investors who have benefited from high interest rates in recent years, rejecting a Cypriot plan to use money from pension funds.
Cypriot Finance Minister Michael Sarris recently travelled to Moscow in an unsuccessful attempt to get Russian help.
Banks in Cyprus have been closed since Monday and many businesses are only taking payment in cash.
On Saturday afternoon more than 1,000 bank employees marched to the Cypriot finance ministry, stopping briefly at the presidential palace.
Cyprus’ Finance Minister Michael Sarris has announced the country has made “significant progress” in talks with the EU and IMF aimed at securing a bailout.
Michael Sarris was also quoted as saying Cyprus was considering a 25% levy on deposits of more than 100,000 euros in its biggest bank.
Cyprus has to raise 5.8 billion euros ($7.5 billion) before Monday to secure a 10 billion-euro loan.
Parliament has approved restructuring the island’s banks, among other moves.
But it rejected a levy earlier this week, before EU pressure brought the proposal back to the table. The rejected proposal included a levy on smaller deposits.
On Saturday afternoon more than 1,000 bank employees marched to the Cypriot finance ministry, stopping briefly at the presidential palace on the way.
Marchers held placards with slogans such as “No to the bankruptcy of Cyprus” and chanted “United we cannot be defeated”.
Michael Sarris was speaking after talks with the “troika” of the EU, the European Central Bank (ECB) and the IMF.
“Significant progress has been made toward an agreement at least with the troika which will report to the Eurogroup,” he said.
“Two or three issues need further work.”
Cyprus has made significant progress in talks with the EU and IMF aimed at securing a bailout
Michael Sarris said experts were now discussing these issues, and the talks would resume later on Saturday afternoon with the aim of finalizing the package.
Cyprus’ President Nicos Anastasiades and party leaders were considering a trip to Brussels depending on the outcome of the meeting.
The Eurogroup, of 17 eurozone finance ministers, will meet to discuss the Cyprus bailout at 18:00 local time on Sunday, its president Jeroen Dijsselbloem tweeted.
The ECB has given Cyprus until Monday to raise the bailout money.
If Cyprus fails, the ECB said it would cut off funds to the banks, meaning they would collapse, possibly pushing the country out of the eurozone.
Cyprus now needs to find out what money-raising measures the EU will accept before putting them to a vote.
Germany is essentially writing the rules for the eurozone, and the message coming from Brussels and Berlin is that the money has to come from the banking sector and investors who have benefited from high interest rates over recent years.
Germany has voiced opposition to another measure approved by the Cypriot parliament on Friday – nationalizing some pensions to pay into a solidarity fund along with other assets.
Germany has also made it clear that it will no longer accept an economy within the eurozone that is dominated by its status as an economic tax haven, our correspondent adds.
Leading Cypriot bankers have urged parliament to accept a levy, with small savers exempted.
On Tuesday, parliament overwhelmingly rejected a levy that would have made small savers pay 6.75%, while larger investors would have paid 9.9%.
The proposal had provoked widespread anger among both ordinary savers and large-scale foreign investors, many of them Russian.
The government fears a levy would prompt foreign investors to withdraw their money, destroying one of the island’s biggest industries.
Michael Sarris travelled to Moscow this week to seek Russian support for alternative funding methods, but Russia said it would only act after the EU reached a deal with Cyprus.
Among nine bills approved on Friday, Cyprus MPs voted to restructure the banking sector, starting with the second-largest and most troubled lender, Laiki (Popular) Bank.
Under the restructuring, troubled lenders will be split into so-called good and bad banks, protecting smaller deposits but allowing levies on bigger ones.
There is now speculation that the biggest lender, the Bank of Cyprus, will also be restructured.
Parliament also voted for capital controls to prevent large withdrawals from Cyprus.
Banks in Cyprus have been closed since Monday and many businesses are only taking payment in cash.
Anthanasios Orphanides, former governor of the Cyprus Central Bank, said Cyprus was a victim of German domestic political pressures ahead of a general election there later this year.
German Chancellor Angela Merkel and her party needed to avoid being accused of using “German taxpayers’ money to pay off Russian oligarchs”.
Cyprus’ parliament has rejected the controversial levy on bank deposits, proposed as part of an EU-IMF 10 billion-euro ($13 billion) bailout package.
No MPs voted for the bill, with 36 voting against and 19 abstaining.
Cyprus’ finance ministry had modified the package, proposing an exemption for savers with smaller deposits, but opposition had remained fierce.
Thousands of protesters who had filled the streets outside parliament reacted with joy to the news of the vote.
EU finance ministers have warned that Cyprus’ two biggest banks will collapse if the deal does not go through in some form.
However, there has been widespread outrage on the island at the prospect of ordinary savers being forced to pay a levy of 6.75%
The plan was changed to exempt savers with less than 20,000 euros, with those over 100,000 euros charged at 9.9%, but this was not enough to placate critics.
Several MPs during the parliament debate on Tuesday evening denounced the proposed plan as “blackmail”.
President Nicos Anastasiades had urged all parties to back the bailout, saying Cyprus will be bankrupt if the deal does not go ahead.
But he also said earlier on Tuesday that MPs were likely to reject the levy, despite the modifications.
“They feel and they think it’s unjust and that it is against the interests of Cyprus at large. But I have to admit that it was something which was not expected by the troika and by our friends, the Eurogroup.”
The president has called an emergency meeting of political party leaders on Wednesday morning to discuss the way forward.
Cyprus’ parliament has rejected the controversial levy on bank deposits
The president of the Eurogroup of eurozone finance ministers, Dutch Finance Minister Jeroen Dijsselbloem, emphasized on Monday that no other eurozone country would be forced to impose such a levy.
The Cyprus central bank chief, Panicos Demetriades, has warned that scrapping the tax on small savers would scupper the plan to raise 5.8 billion euros in total from bank deposits. He also predicted account holders could suddenly withdraw 10% or more of the total in Cypriot banks if the levy was imposed.
Fearing a run on accounts, Cyprus has shut its banks until at least Thursday. The local stock exchange also remains closed.
Cyprus’ banks were badly exposed to Greece, which has itself been the recipient of two huge bailouts.
Panicos Demetriades said that he favored imposing the levy only on deposits larger than 100,000 euros, with eurozone finance ministers also suggesting such a move.
Instead, they argue that wealthier savers should pay the levy at a higher rate – losing more than 15% of their investments, correspondents say.
However, many of those larger deposits are held by Russians, and Russian leaders have already reacted angrily to the Cypriot levy – on Monday President Vladimir Putin called it “unfair, unprofessional and dangerous”.
Of the estimated 68 billion euros in total held in Cypriot bank accounts about 40% belongs to foreigners – most of them thought to be Russians.
The Cypriot government fears a higher levy on these larger deposits would prompt many large investors to withdraw from the island and would effectively destroy its financial sector.
Russia has also said it may reconsider the terms of a 2.5 billion-euro loan it made to Cyprus in 2011, which was separate from the proposed eurozone bailout.
Cypriot Finance Minister Michalis Sarris arrived in Moscow on Tuesday to see if the repayment on that loan could be delayed until 2020, and whether the interest rate could be reduced.
Officials said he would also be looking for “further investment” in his country, correspondents report, with some speculating this might mean Russian access to Cyprus’ large undeveloped gas deposits.