Cyprus scrambles to find cash after MPs snub bailout

Debt-hit Cyprus was scrambling Wednesday to secure funding vital to an international bailout after MPs rejected the terms of an EU deal, tapping Russia, the church and state institutions for cash. With banks closed and fears growing of a forced eurozone exit, President Nicos Anastasiades huddled with party leaders and financial experts trying to track a way out of the island's worst crisis since the 1974 Turkish invasion. The meeting comes a day after lawmakers flatly rejected a highly unpopular measure that would have slapped a one-time levy of up to 9.9 percent on bank deposits as a condition for an EU-led 10-billion-euro ($13-billion) loan. The 5.8 billion euros the proposal would have raised was crucial to Nicosia getting the full rescue. With that now in doubt, Cyprus must now find other ways to raise cash to repay its debts. Caught between the demands of its eurozone lenders and traditional ally Russia, the government is treading a very fine line, and one reason being given for parliament's refusal to accept the deposits levy was that Moscow had to be placated. Russians -- many of them wealthy tycoons seeking to avoid taxes back home -- hold between a third and half of all Cypriot deposits and have $31 billion in private and corporate cash buried in the island's teetering banks. Any levy on these holdings could have sparked a capital flight that would probably have collapsed the banking sector. Cyprus's banks were left heavily exposed to the Greek debt crisis, and their failure would leave the country on the verge of bankruptcy and in danger of going into default. Illustrating the balancing act Anastasiades is being forced to perform, he telephoned both German Chancellor Merkel and Russian President Vladimir Putin on Tuesday night after parliament angrily vetoed the bailout deal. The Kremlin said that Putin and Anastasiades had discussed what Russia could do to help. By that time the Cyprus president had already sent his finance minister, Michalis Sarris, to Moscow to woo Russian assistance and seek an easing of the terms of a 2.5-billion-euro loan that Moscow gave Nicosia in 2011. Sarris said on Wednesday the Moscow talks had started well. "We have a very good beginning. We had a very good, honest and open discussion," Sarris told reporters after meeting his Russian counterpart Anton Siluanov. But he stressed that he had so far received no offer from Russia's natural gas giant Gazprom to infuse Cyprus's banks with cash in exchange for a stake in its offshore energy fields. The option has been mentioned as one possible way Moscow could help the debt-laden island. Analysts said that while Tuesday's events raised concerns Cyprus could exit the eurozone, they soothed fears that such levies could be introduced in other troubled eurozone countries. Stephen Wood, chief market strategist at Russell Investments, told Dow Jones Newswires: "We're watching very closely, but at present we don't think Cyprus is a game-changer in Europe. "We're looking at financial-system indicators in Italy, Spain, Portugal, Greece and also bank data to see if there's a run or even a jog on banks in those countries. We don't see that just yet." Wednesday's emergency meeting in Nicosia were also being attended by Central Bank governor Panicos Demetriades and a member of the troika of the European Union, European Central Bank and International Monetary Fund, state television said. It said one option being looked at to raise the 5.8 billion euros was the nationalisation of the provident funds of state and semi-state institutions, which could raise around three billion euros. Another option was a shrinking of the banking sector, possibly merging the island's two biggest banks into one, so the amount of recapitalisation needed would be lower. The head of the powerful Orthodox Church in Cyprus, Archbishop Chrysostomos II, offered to help bail the country out by putting church assets at the government's disposal. "The entire property of the church is at the disposal of this country to prevent the economy from collapsing," he said after meeting Anastasiades. The church is the largest landowner on the island and also has stakes in businesses including the country's Hellenic Bank, with total assets estimated to run into tens of millions of euros. Fearing a run on accounts, Cyprus has shut its banks until at least Thursday, but there was no certainty the institutions would open this week at all.