Panic in Cyprus as Options for Rescue Disappear

Panic in Cyprus rose overnight as rescues by Russia and members of the European Union became unlikely. A plan to tax savings accounts, rejected by parliament, is again part of last-ditch discussions of how to secure an aid package from the European Union, International Monetary Fund (IMF) and European Central Bank (ECB).

The only thing certain at this point is that the Cyprus government continues to drag its feet instead of independently addressing its own problems.

According to MarketWatch:

Aside from the ECB, Russia also represented a potential source of finance for Cyprus, having lent the country €2.5 billion two years ago. However, Bloomberg reported Friday that Cyprus’s Finance Minister Michael Sarris, who had been in Russia for talks, was on his way back to Nicosia without an agreement to extend the loan or revise the terms.

The government of Cyprus is now trying to come up with an alternative plan, more palatable to parliament, before the ECB’s deadline.

On Thursday, reports emerged that Cyprus Popular Bank PCL — also known as Laiki Bank — will be split into a “good bank” and “bad bank” to avoid bankruptcy under a revised proposal.

Bank deposits totaling €100,000 or less, would also be protected, according to Cyprus central-bank Gov. Panicos Demetriades. Still, that implies that deposits of more than €100,000 would be subject to a deposit tax.

If the ECB, EU, and IMF reject the last and best effort by the Cyprus government, the nation could be out of the European Union in short order.