Members of the troika of international lenders arrive at the Presidential Palace yesterday (Christos Theodorides)
THE government yesterday ordered banks to stay shut until next week as it toyed with the idea of re-submitting a proposal on tax deposits – at a much lower rate than the previous scheme – as it scrambled to avert a financial meltdown.
The government was yesterday trying to find alternative solutions after parliament on Tuesday rejected the terms of a bailout from the European Union and turned instead to Russia for a lifeline.
"We don't have days or weeks, we have only hours to save our country," Averof Neophytou, ruling DISY deputy chairman, told reporters as crisis talks in Nicosia dragged into the evening.
Neophytou tried to get the message through to other parties.
“I believe we will not be the cursed generation of politicians who will let our country go bankrupt,” Neophytou added.
It was suggested yesterday that the government may submit a bill today proposing a haircut on deposits but at lower rates than legislation that was rejected by parliament on Tuesday.
MPs threw out a proposed tax on bank deposits in exchange for a €10-billion 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 tax -- 6.7 per cent on deposits under €100,000 and 9.9 per cent on deposits over €100,000 -- was designed to fetch the government €5.8 billion.
The shortfall from the lower rates could be covered by nationalising the provident funds of semi-state companies.
Bank of Cyprus vice president Evdokimos Xenophontos said the situation could be reversed but warned against touching foreign deposits.
“We cannot do it to foreign depositors who trusted us. This could be theft,” he told reporters after meeting President Nicos Anastasiades last night.
Xenophontos said only Cypriots must foot the bill in exchange for bank warrants, better interest rates, etc.
“If we protect them (foreigners) even if they leave, they will come back. We lived through an invasion and we overcame the difficulties on our own,” he said.
Meanwhile, facing the prospect of a run on banks, the government said lenders would remain shut on Thursday and Friday, making next Tuesday, March 26, the next normal working day. Greece said Greek branches of Cypriot banks would also stay shut there.
The extended bank holiday has taken its toll on businesses, with people reduced to limited withdrawals from cash machines.
The European Central Bank's chief negotiator on Cyprus, Joerg Asmussen, said the ECB would have to pull the plug on Cypriot banks 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 programme is not agreed on soon, which would allow for a quick recapitalisation of the banking sector," Asmussen told German weekly Die Zeit in an interview late on Tuesday.
German Chancellor Angela Merkel, whose country is Europe's main paymaster, said it was up to the Cypriot government to come up with an alternative proposal but it was fair to expect those with savings over €100,000 - the normal limit for state deposit insurance - to contribute to a bailout.
The EU has a track record of pressing smaller countries to vote again until they achieve the desired outcome.
Nicosia was eerily quiet on Wednesday, and there was evidence the bank closure was slowing trade.
"Things won't be so bad as long as people can withdraw from ATMs but if they go too there will be a huge problem," said Titos Pitsillides, 50. Several petrol stations were refusing credit cards, insisting on payment in cash.
Government spokesman Christos Stylianides said a "Plan B" was in the works.
DISY lawmaker Marios Mavrides told Reuters one option under discussion was to nationalise pension funds of semi-government corporations, which hold between €2 billion and €3 billion.
An opposition politician present at yesterday’s crisis talks said: "The idea is we can get the pension funds of organisations 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 amount by passing the Cypriot banks into Russian hands."
But there was nothing concrete out of Moscow last night.
President of the European Council Herman Van Rompuy yesterday stressed the need to find a solution for the economic crisis in Cyprus.
Van Rompuy, who was speaking before the European Parliament, said that the situation in Cyprus must be resolved urgently.
"The current, highly uncertain situation is highly damaging, especially for the people of Cyprus, and has to be addressed as soon as possible," he stressed.
Van Rompuy said the EU was ready to show its solidarity with a €10 billion deal and added that the EU was open to alternative solutions.
What is now important, Van Rompuy said, is to save Cyprus and the prosperity of the Cypriot people.
President Nicos Anastasiades said late last night a decision would have to be made today at the latest. Everyone would have to rise to the occasion, he warned.
(Reporting by George Psyllides and Reuters)
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