NICOSIA, Cyprus – Searching for a way out of a crippling financial crisis, officials in Cyprus on Wednesday pursued a new bailout strategy that could include a loan from Russia in exchange for natural gas leases and selling off assets from its most troubled banks.
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 percent of people’s bank accounts failed miserably. Now officials are trying to limit the amount of money they need to take from customers’ deposits.
The new “Plan B” could be voted on as early as today, 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 this 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.
Cyprus has turned to longtime 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.