Cyprus seeks Russian bailout aid, EU threatens cutoff

Cyprus’s finance minister pleaded with Russia for help on Wednesday to avert a financial meltdown after the island’s parliament rejected the terms of a European bailout, raising the specter of a looming default and bank crash.

Finance Minister Michael Sarris said he had reached no deal on financing with his Russian counterpart, Anton Siluanov, but talks were continuing.

Cypriot officials disclosed that the country’s energy minister was also in Moscow, ostensibly for a tourism exhibition. Cyprus has found big gas reserves in its waters adjoining Israel but has yet to develop them. “We had a very honest discussion, we’ve underscored how difficult the situation is,” Sarris told reporters after talks with Siluanov. “We’ll now continue our discussion to find the solution by which we hope we will be getting some support.

“There were no offers, nothing concrete,” he said.

Austria’s finance minister made clear the European Central Bank could soon pull the plug on Cypriot banks after the island’s parliament rebuffed EU demands for a levy on bank deposits to raise 5.8 billion euros.

Not a single lawmaker voted for a proposed levy that would have taken up to 10 percent from larger accounts, many of which are held by Russians and other foreigners, while sparing small savers with less than 20,000 euros in the bank.

It was the first time a national legislature had rejected the conditions for EU assistance, after three years in which lawmakers in Greece, Ireland, Portugal, Spain and Italy all accepted biting austerity measures to secure aid.

Rejection of the key condition for a 10 billion euro ($12.9 billion) bailout, cast the 17-nation currency bloc into uncharted waters, with a risk of financial contagion to other troubled member states.

However, the EU has a tradition of pressing smaller countries to vote again until they achieve the desired outcome.

President Nicos Anastasiades, barely a month in the job, met party leaders and the governor of the central bank at his office. Government spokesman Christos Stylianides said a “Plan B” was in the works.

“A team of technocrats has gone to the central bank to discuss a plan B related to financing and reducing the 5.8 billion euro amount,” he told reporters during a break in the meeting with party leaders. He did not elaborate.

Anastasiades was also due to hold a cabinet meeting and talk with officials from the so-called “troika” of the EU, European Central Bank and International Monetary Fund.

Among the most urgent decisions awaited was whether the government will allow banks to reopen as planned on Thursday and Friday, at the risk of a run of withdrawals, or keep them closed until next week in hopes of a solution. Deputy Central Bank governor Spyros Stavrinakis said no decision had been taken yet.

Cyprus has asked Russia for a five-year extension of an existing loan of 2.5 billion euros that matures in 2016, and a reduction in the 4.5 percent interest rate. Sarris told reporters in Moscow he had also discussed “things beyond that”.

Austrian Finance Minister Maria Fekter said the next move was up to Cyprus but the ECB would not keep Cypriot banks afloat indefinitely unless a bailout was agreed.

If Cyprus did not come up with a new plan, Fekter told reporters: “Then the banks won’t open on Friday because the ECB will not provide any more liquidity. That is a more horrible scenario than what is on the table now.