Cyprus moves closer to meeting bailout deadline

Cyprus was a step closer to meeting a Monday deadline to rescue an EU bailout after parliament, in a late-night session, backed the first three of eight measures advanced by the government. But with the clock ticking down to a crunch Sunday meeting with eurozone finance ministers, MPs still had to debate more contentious issues, including a tax of up to 15 percent on bank deposits of 100,000 euros ($129,000) and more. Already Tuesday, MPs had flatly rejected the levy when it was presented in slightly different form. On Friday however, they backed a national solidarity fund to be set up through the nationalisation of public and private sector pensions. They also approved capital controls to prevent a run on the island's troubled banks when they finally reopen on Tuesday after more than a week. And they passed a restructuring plan drawn up by the central bank that will separate good debts from bad in the island's troubled banks, particularly second largest lender Popular Bank -- Laiki in Greek. This bill, easily the most contentious of the three approved, passed by 26 votes to two, with 25 abstentions. Acting ruling Disy party leader Averof Neophytou had appealed to MPs to back the measures, saying it would guarantee all deposits of up to 100,000 euros. 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 Popular Bank, although a few hundred might be lost through restructuring. The emergency session came after angry bank employees, fearful for their jobs, demonstrated outside parliament. MPs adjourned the session shortly before midnight with no time set to resume debate on the rest of the government's package. It is aimed at raising 5.8 billion euros ($7.47 billion) to unlock loans worth 10 billion euros. The government needs to seal the package by Monday or face being denied European Central Bank emergency funds, a blow that would devastate the island's banks and its economy. German Chancellor Angela Merkel warned Cyprus against "exhausting the patience of eurozone partners" at a meeting Friday with the parliamentary group of her junior Free Democratic Party coalition partners, participants told AFP. Some EU sources have said the bloc is ready to eject Cyprus from the eurozone to prevent contagion of other debt-hit members such as Greece, Spain and Italy."The House of Representatives will soon be called upon to make difficult decisions," President Nicos Anastasiades tweeted ahead of the parliamentary session. There will be painful aspects, but the country must be saved." Even after Friday's session, there are still tough decisions to be made. Although deputies rejected the controversial savings tax on Tuesday, with the deadline approaching Cyprus's chamber of commerce and employers' federation joined its major banks in calling on them to reconsider. Some of the bank employees demonstrating outside parliament were among those calling for a rethink on the tax, or "haircut". Others protesters however vehemently oppose the measure. A group of about 30 hooded youths burned a European flag next to the parliament building in front of police barricades. "The haircut is robbery," they chanted. Eurozone finance ministers and IMF chief Christine Lagarde will gather in Brussels on Sunday in a bid to finalise the Cyprus rescue before Monday's deadline. EU leaders said next week's summit with Japan to launch free trade talks had been postponed indefinitely as they try to resolve the situation in Cyprus. The euro pulled up against the dollar Friday amid hopes that an EU-IMF rescue deal for Cyprus would be formulated this weekend to avoid a meltdown of its banks. But ratings agency Moody's downgraded the credit-worthiness of all three main Cyprus banks, citing expected depositor losses, the imposition of capital controls and uncertainty over recapitalisation plans. Cypriot hopes of an economic lifeline from Russia have so far come to nothing. Finance Minister Michalis Sarris left Moscow on Friday after two days of inconclusive talks. But Prime Minister Dmitry Medvedev said later that Moscow had not closed the door on future assistance. Athanasios Orphanides, a former governor of the Central Bank of Cyprus denounced the terms of the EU bailout, in an interview with AFP. "When governments in some of the larger European member states start blackmailing the government of one small member state to confiscate deposits, the question is, who's next?" said Orphanides, who led the Central Bank of Cyprus from 2007-2012. Greece's third biggest bank, Piraeus Bank, is to acquire the Greek subsidiaries of the Bank of Cyprus and the Popular Bank, a banking source said. As they become Greek banks they will become eligible for recapitalisation funds made available by the second bailout to Greece, rather than requiring Cyprus bailout money.