Cyprus weighs new bailout plan as meltdown looms

Cyprus was on Thursday fine-tuning a "Plan B" aimed at securing a eurozone bailout that the European Central Bank warned should be adopted by the weekend to avoid a banking meltdown on the debt-hit island. As President Nicos Anastasiades huddled with political party leaders over the revised plan, Eurogroup head Jeroen Dijsselbloem warned in Brussels the crisis poses a "systemic risk" that threatens to ricochet through the eurozone. The warning was echoed by ratings agency Fitch, which warned on Thursday that any support package for Cyprus that includes a stability levy "inevitably increases the danger of contagion risks within the eurozone." And in Moscow, Prime Minister Dmitry Medvedev slammed the European proposals to solve the Cyprus crisis as "absolutely absurd," further raising tension between Russia and the European Union.With financial transactions at a standstill and banks shut since Saturday not due to reopen until next Tuesday, queues formed outside cash points and retailers complained they were unable to restock because suppliers were demanding cash on delivery. The European Central Bank abruptly warned that it could pull the plug on emergency funding for the Cypriot banking system before the banks reopen if no new bailout deal is agreed by then. "The governing council of the European Central Bank decided to maintain the current level of Emergency Liquidity Assistance (ELA) until Monday, March 25. Thereafter, Emergency Liquidity Assistance (ELA) could only be considered if an EU/IMF programme is in place that would ensure the solvency of the concerned banks," the ECB said in a short statement in Frankfurt. Cyprus's banks Already on Wednesday, ECB executive board member Joerg Asmussen had hinted that Cyprus's banks could not count on emergency funding if Nicosia did not agree to a bailout deal, complete with a restructuring of its banking system. Local media said Plan B, thrashed out by technical experts through the night and expected to be put to parliament later Thursday, has an option to nationalise state and provident funds, with bonds issued against future natural gas revenues.Phileleftheros newspaper said this would raise around 3.5 billion euros of the 5.8 billion euros Cyprus is required to amass to secure the eurozone bailout. The remaining 2.3 billion euros would come from a tax on bank deposits above 100,00 euros, it said, reviving a "haircut" option that torpedoed the original plan. The troika of lenders -- the European Union, European Central Bank and International Monetary Fund -- agreed the bailout on Saturday on condition Cyprus raised another 5.8 billion euros. That plan that would have seen all bank savings hit with a one-time levy of up to 9.9 percent was rejected outright by parliament in a Tuesday vote in which ruling party MPs abstained. The revised plan was hastily drawn up after Finance Minister Michalis Sarris failed to make any progress in Moscow talks to secure aid as a rough-bargaining Russia sought lucrative assets in exchange for more help.Officials familiar with Wednesday's talks were cited by Vedomosti business daily as saying there were no concrete results and that Cyprus did not make any offers to Russia that were immediately attractive, although Moscow was analysing them. Sarris was to hold further meetings on Thursday although the prevailing mood offered little optimism. At the opening of a conference in Moscow with the head of the European Commission, Jose Manuel Barroso, Medvedev slammed the European strategy to bail out the near-bankrupt eurozone member. "This scheme that is being discussed on Cyprus now looks absolutely absurd," Medvedev said. "I think that in any case the Eurogroup could examine a future plan of regulating Cyprus with the participation of all the interested sides, including Russian structures." In an interview published early Thursday on the Russian government website, Medvedev compared the actions of the European Union, the European Commission and the Cyprus government to regulate the debt problem to "a bull in a china shop." Russians including wealthy tycoons hold between a third and half of all Cypriot deposits and are believed to have more than $30 billion in private and corporate cash in the island's banks. Eurogroup head Dijsselbloem said in Brussels a fresh loan from Russia would be the wrong approach to take, as this would only pile up debt to an unsustainable level. The Cypriot banking model needs a total overhaul, he said. Referring to "worries about the stability of the eurozone," Dijsselbloem said the "present situation (was) definitely a systemic risk -- the unrest of the last couple of days has proven this."