Cyprus needs to come up with 5.8 billion euros ( $7.5 billion) on its own in order to secure 10 billion euros in rescue loans from international creditors. But the country's first plan to seize up to 10 per cent of people's bank accounts failed miserably. Now officials are trying to limit the amount of money they need to take from customer's deposits.
The new "Plan B" could be voted on as early as Thursday, three top government officials said.
The latest move came a day after lawmakers voted overwhelmingly against the earlier plan — a rejection that threw Cyprus' entire bailout into question. That raised the possibility the country's banks could collapse, the government would be unable to pay its bills and Cyprus could be forced out of the euro.
That could roil global financial markets as well as endanger deposits in the country even further.
The new "Plan B" was described by three top government officials, who spoke on condition of anonymity because details of the proposal were not being released until party officials had a chance to review them at a meeting Thursday morning.
The package includes a proposal to restructure Cyprus' heavily indebted second-largest lender, Laiki. The idea would be to isolate the bank's bad assets, which would be taken over by the government, from its good assets, which could be sold off to raise money. That strategy could also be applied to the country's biggest lender, Bank of Cyprus.
To avoid bank runs and give officials time to push the package through, the country's banks, which have been shuttered since Saturday, will remain closed for the rest of the week, said the central bank spokeswoman, Aliki Stylianou. Monday is a bank holiday, so banks will not reopen before Tuesday.
Cyprus has turned to long-time ally Russia for help, and Finance Minister Michalis Sarris was in Moscow on Wednesday to discuss a range of aid options and vowed to remain there until he secured a pledge of support. "We will be here until some kind of agreement is reached," Sarris said.
Nearly a third of the total amount of deposits in Cyprus' banks is believed to be held by Russians. The idea that authorities could dip directly into people's bank accounts had outraged Cypriots and Russians alike.
A Cypriot government official said the new proposal still includes some tax on deposits, but at a percentage far lower than those originally proposed. The official said the EU had given Cyprus until Monday to come up with an alternative, so speed was of the essence.
The European Union and Germany in particular, have long argued that they should not have to ask their own taxpayers to contribute to bailing out a country when it was Russian oligarchs who would benefit.
While the economy of Cyprus is tiny — a mere 0.2 per cent of the eurozone — its exit from the shared currency could raise speculation that other, larger countries could leave, roiling global financial markets.
Cypriot political leaders held emergency meetings throughout the day Wednesday to try to find an alternative plan and seemed inclined to rely on Russia to help them out.
Russia is a longtime ally and also has skin in the game — Russians own about a third of the 68 billion euros in deposits with Cypriot banks. It was unclear however, how much it would help and the Russians appeared to be balking at pouring any more money into the country.
Russia could extend a 2.5 billion euro loan that it gave Cyprus in 2011 and lower repayment rates. It could also provide a fresh loan, have one of its banks take over one of Cyprus' ailing lenders, or demand an interest in natural gas fields that Cyprus has discovered in the Mediterranean.
Russian Prime Minister Dmitry Medvedev criticized the eurozone and Cypriot officials for their plan to seize deposits, comparing them to Soviet-style autocrats.
"So far, the actions of the European Union, the European Commission and the government of Cyprus have resembled that of an elephant in a china shop," Medvedev said in remarks carried Wednesday by the Interfax news agency.
Scrambling to avert a financial meltdown, Cypriot President Nicos Anastasiades held talks Wednesday with European and IMF officials. The eurozone and IMF must sign off on any Plan B the Cypriots come up with if it is to be approved as part of the bailout.
Some sort of deal must be approved within days because Cyprus is running on borrowed time — literally.
The European Central Bank is keeping the Cypriot banks alive by allowing them to draw on emergency support from the local central bank. But the ECB has said it would cut off that aid if there was no bailout deal soon and it became clear the banks had no hope of becoming solvent again.
In Nicosia, residents waited anxiously to see what lay in store for them.
Avetis Bahcecian has been running his Armenian restaurant in Nicosia for years. Now, with the uncertainty swirling around Cyprus, he's worried about his business.
"Whatever they do, they have to do it quickly because this uncertainty is hurting business," the 41-year-old said as he kneaded dough to make lahmacun, a traditional Armenian pizza-style food. "Our business is down by 40 per cent in the last couple days."
ATMs have been dispensing cash and debit and credit cards have been working, so Cypriots have not faced any immediate cash shortage for day-to-day living.
Tensions remained high as Cypriots wondered whether the country's final rescue deal would include the hated bank deposit seizures.
Under the initial bailout plan conceived in Brussels last weekend, Cyprus was to have funded its part of the bailout by seizing 6.75 per cent of all deposits up to 100,000 euros and 9.9 per cent of those above that threshold. That caused outrage, leading the government to propose an amended version that would have spared deposits up to 20,000 euros. That plan was rejected by lawmakers on Tuesday.
As uncertainty grew over the country's future, even the country's influential Orthodox church offered to help.
Its head, Archbishop Chrysostomos II, said the church was willing to mortgage its assets to invest in government bonds. The church has considerable wealth, including property, stakes in a bank and a brewery.
"The wealth of the church is at the disposal of the country," Chrysostomos said.
Vladimir Isachenkov in Moscow and David McHugh in Frankfurt, Germany, contributed to this report.Suggest a correction