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Cyprus Announces New Bailout Plan, Drops Proposed Tax


People line up to make a transaction at an ATM outside a branch of Laiki Bank in Nicosia, Cyprus, on March 21.
Crisis-hit Cyprus has announced an agreement between political parties to establish a solidarity fund as part of a new bailout plan.

President Nikos Anastasiades made the announcement after a meeting that lasted for several hours on March 21.

Cypriot leaders also agreed to drop a hugely unpopular tax on bank deposits that had been the centerpiece of a previous bailout plan rejected earlier this week by parliament.

Cyprus must raise 5.8 billion euros ($7.5 billion) in order to qualify for a 10 billion-euro ($13 billion) international bailout.

Government spokesman Christos Stylianides said the legal and technical details of the new Solidarity Investment Fund were still being worked out, and the bill would be reviewed by the cabinet later on March 21.

Demetris Syllouris, the leader of a small party who was in the meeting with the president, said the fund would appeal for donations from the public, businessmen, and foreign investors.

Other measures of the plan would reportedly include restructuring Cyprus's troubled banks, and delving into pension funds.

Looking To Russia

The decision came as the European Central Bank (ECB) told Cyprus it had until March 25 to come up with a new bailout arrangement or see its emergency funding cut off and its banking sector shut down.

The ECB is keeping Cypriot banks afloat by allowing them to use emergency funds from the local central bank.

Simon O'Connor, a spokesman for EU Economic and Monetary Affairs Commissioner Olli Rehn in Brussels, warned that "the situation is serious" in Cyprus.

But O'Connor said Nicosia could still avoid bankruptcy, and the European Commission "is convinced that a managed and orderly way forward is still possible for Cyprus and we are ready to provide whatever advice and assistance that may be necessary to facilitate a sustainable outcome."

One way to avoid bankruptcy appears to be asking for Russian help. Nearly one-third of the 68 billion euros ($88 billion) in deposits in Cyprus's banking sector are held by Russians.

Finance Minister Michalis Sarris has been in Moscow since March 19 seeking to make a deal. Sarris, who was due to meet with Russian counterpart Anton Siluanov and the Russian energy minister later on March 21, said Russia's help could come not as a loan but as some form of investment.

Cyprus has recently discovered significant off-shore natural-gas deposits, and Russian reports quoted Sarris as saying that "we are discussing the subjects of gas, bank cooperation, and other subjects."

European Commission President Jose Manuel Barroso was also in Moscow for talks with Russian Prime Minister Dmitry Medvedev on possible solutions to the crisis.

'Solution Within Europe'

But speaking at a meeting of the European Parliament's Economic and Monetary Affairs Committee in Brussels, Dutch Finance Minister Jeroen Dijsselbloem, the head of the Eurogroup panel of eurozone finance ministers, said more loans were not the answer.

"If the Russians were to say, 'We could lend more,' that would not help on the sustainability of the debt situation. Building up debts in Cyprus doesn't help them to work towards a new future," Dijsselbloem said.

"The Eurogroup was and is of the view that small depositors should be treated differently from large depositors, and it reaffirmed the importance of fully guaranteeing deposits of below 100,000 euros," he added.

On March 20, European Parliament President Martin Schulz told journalists in Brussels: "The eurozone must find a solution [to the Cyprus debt crisis] within our own frames, within the frame of our own cooperation in the eurozone. This is for me absolutely vital, and we should not run to find a solution outside the European Union."

With reporting by AP, Reuters, dpa, AFP, and BBC