Cyprus makes significant progress in bailout talks with EU and IMF

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.”

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”.