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Protesters clashed with police and panic spread through the streets of Cyprus as officials scrambled to come up with a plan to salvage the nation’s broken banking system and maintain a financial lifeline from Europe.
Hundreds of demonstrators gathered outside Parliament in the capitol of Nicosia and long queues formed at ATM machines as Cyprus remains caught between European leaders and Russia over a plan to avert the country’s financial collapse.
Europe’s central bank yesterday gave Cyprus until Monday to raise $7.5 billion or risk being shut off from emergency funds that are the only thing keeping the tiny Mediterranean island’s banks afloat.
Cyprus officials yesterday huddled together on a “Plan B” to raise the cash. The plan could include any of the following options:
* Nationalizing or “raiding” pensions of quasi-government companies;
* Levying a deposit tax on large bank deposits, most of them Russian;
* Issuing bonds tied to future revenue from the island’s natural gas reserves.
Cypriot banks have been operating off a liquidity lifeline, known as Emergency Liquidity Assistance, that Europe’s central bank has threatened to pull unless the country can reach terms with the International Monetary Fund and other European nations on a bailout pact. They have offered Cyprus $13 billion, if the country can come up with $7.5 billion on its own.
The initial package was rejected on Tuesday amid massive protests about raising money through a punishing tax on banks deposits.
Russia, which has billions of euros stashed in Cyprus bank accounts, threatened to pull a $3.5 billion loan if the bailout plan was approved.
Russia has since declined to give Cyprus another loan — and time is running out.
While rejecting an outright loan, Russia — which has been eying the exploration rights to the tiny nation’s oil and natural has reserves — left open the possibility of hashing out an energy deal that could raise the much needed cash.
Meanwhile, hundreds of protesters gathered outside Parliament to jostle with riot police and waive banners portraying Germany’s Chancellor Angela Merkel with a mustache to resemble Hitler.
Merkel, who is in an election year, has been pushing the bank deposit tax on Cyprus because she doesn’t want German taxpayers to foot the tab for Cyprus and its rich Russian patrons.
Emotional employees of Cyprus’ Popular Bank, known as Laiki Bank, also came out in droves amid rumors the bank could be on its last legs.
Yesterday, the bank imposed a $335 per day limit on ATM withdrawals in an effort to cope with demand.
Cyprus’ Central Bank governor, Panicos Demetriades, confirmed yesterday that unless measures are taken, including restructuring of the banking system, Popular Bank could be led “to immediate bankruptcy.”