Cyprus: Significant progress in bailout talks

Cyprus reported "significant progress" in talks on Saturday with the EU and IMF aimed at clinching a 10 billion-euro ($13 billion) bailout to save the eurozone member from looming bankruptcy. The Cypriot authorities are scrambling to raise 5.8 billion euros before a Monday deadline set by the European Central Bank or it will cut off emergency financial aid to the island. "Significant progress has been made towards achieving an agreement with the troika," Finance Minister Michalis Sarris said after initial talks in Nicosia with officials from the EU, ECB and International Monetary Fund. But "several issues arose that need further working on" in the talks, which centred on a proposal to impose a one-time charge on savings held at the Bank of Cyprus, the island's biggest lender. Cyprus is considering imposing a tax of around 25 percent on deposits of more than 100,000 euros held at the Bank of Cyprus, as well as restructuring Laiki Bank (or Popular Bank) into a "good" and "bad" bank. But a Laiki economist told AFP the government was trying to convince the troika such a rate was too high. "They are trying to convince the troika to take a lower 'haircut' than 25 percent because parliament might not accept it," said Yiannis Tirkides, adding the eurogroup might reject anything lower. EU sources have said if no deal is reached, the 27-nation bloc is ready to eject Cyprus from the eurozone to prevent contagion of other debt-hit members such as Greece, Spain and Italy. Sarris estimated the legislation would be tabled in parliament later on Saturday, but an official cited by CNA state news agency played down the likelihood of that happening. The talks came after parliament passed a raft of bills late on Friday including to create a solidarity fund, impose capital controls and restructure an outsized banking sector. The session of parliament came as restive crowds, mostly bank workers anxious that their employers -- and therefore their jobs -- not be sacrificed in the deal, demonstrated outside. Some 30 hooded youths burned an EU flag next to the parliament building in front of police barricades. "The haircut is robbery," they chanted, referring to the most onerous measure yet to be presented before parliament -- the levy on bank deposits that is still on the table. The streets of Nicosia were deserted on Saturday, as anxious residents waited to see which way the crisis turns. "People don't know if they will have money tomorrow or the day after. We'll try to live with what we have got now and we'll see what happens next," said Yiorgos Andoniou, a jobless 57-year-old. "We are in this situation because... we were living beyond our means for 25 years and now the bill has come," said a woman identifying herself as Catherine. "Eventually we'll tighten our belts and go back to the practical and hard-working people that we were before." The contentious levy on bank deposits was already rejected by parliamentarians as "blackmail" on Tuesday, albeit in a different form. But with the deadline looming and the option of securing funding from elsewhere, including from ally Russia, exhausted, MPs have been forced to revisit it as an option to help raise the 5.8 billion euros. Prior to Saturday's meeting, commentators said the government wanted to hold further talks on its new plans for the "haircut" with the troika before putting it to parliament. Acting ruling Disy party leader Averof Neophytou had appealed to MPs to back the measures, stressing all deposits of up to 100,000 euros would be guaranteed. Those with larger balances, however, might have to wait years to get all their money back, Neophytou said. The plan would also secure some 8,000 jobs in Laiki Bank, although several hundred might be lost. Neophytou's plea came as the clock ticked down to a crucial meeting in Brussels on Sunday of eurozone finance ministers and IMF chief Christine Lagarde in a bid to finalise the rescue package before Monday's deadline. Laiki's workforce -- amounting to about one percent of Cyprus' 840,000 population -- reflects the bloated size of the island's banking sector blamed by the EU for being behind the crisis. The economist Tirkides said people's deposits over the 100,000 euro threshold would be "blocked" for years while the new bad bank absorbs its non-performing loans, which he put at about 30 percent of all Laiki lending. "The philosophy seems to be that the banks who have the problem are the ones that should pay," he said.