Cyprus' politicians are due to vote Friday, March 22 on a hastily drawn-up "Plan B" to rescue their economy before the European Central Bank (ECB) withdraws support for the country's banking sector if a bailout is not agreed by Monday, March 25.

The series of bills are thought to include a solidarity fund to be created out of state assets in order to meet the ECB's ultimatum to raise billions of euros, as well as the imposition of capital controls, though the restructuring of the country's troubled banks, ground zero of the crisis, could be delayed, say reports.

With Cyprus unable to agree an alternative bailout from Russia, from which it forced to turn after its MPs flatly earlier this week rejected a plan to tax bank deposits in order to raise find EUR5.8bn to qualify for a EUR10bn bailout loan from the EU and International Monetary Fund (IMF), this "Plan B" became essential.

After holding a phone conference on Thursday night to discuss the situation, Eurozone finance ministers said they stood "ready to discuss with the Cypriot authorities a draft new proposal", which they expected "the Cyprus authorities to present as rapidly as possible". If no "Plan B" can be found by Monday, the ECB said in a statement that it might have to cut off funding to the island's banks. Given that funding is the only thing keeping them alive, such a move would trigger their collapse and possibly the country's exit from the euro.

Cyprus's two largest banks, Bank of Cyprus and Laiki, are most at risk, and unsurprisingly there were lengthy queues at many cash machines on Thursday as banks and the domestic stock market remained closed.

Averof Neophytou, the deputy leader of the ruling Disy party, confirmed to The Guardian that leaders of the parties had agreed to create the solidarity fund. Details of the scheme were not released, but it was believed the fund could use Cyprus's energy resources as collateral, or include state assets, pension funds or the property of the Church of Cyprus.

Parliamentary speaker Yiannakis Omirou, who leads the small Edek socialist party, was reported as saying the issue of taxing bank deposits had not been discussed during the meeting, suggesting a savings levy could be off the agenda. It was that tax that set off the whole brouhaha. In order to raise the EUR5.8bn that would free up the EU/IMF's EUR10bn bailout, the Cyprus government had proposed a 6.75% tax on savers with more than €20,000 in the bank, rising to 9.9% for those with more than €100,000.

This caused outrage and was unanimously rejected by MPs on March 19. In desperation, the Cypriot finance minister, Michael Sarris, was dispatched to Moscow that day in an attempt to secure a rescue package. Cyprus is the favourite offshore financial haven for Russian business. As of January, €43bn of the €68bn deposited in Cypriot banks was held by domestic residents, according to the central bank. Thus more than €20bn came from the rest of the world, with the bulk of that believed to be from Russia. However, many Russian companies are domiciled in Cyprus and so technically count as domestic, meaning the volume of Russian cash in the banks could well be much more than that €20bn.

However, the chairman of the Eurogroup of Eurozone finance ministers, Jeroen Dijsselbloem, told the European parliament Thursday that Moscow had indicated it was not willing to extend "another loan or an investment in the banks", Reuters reported. Russia has already extended Cyprus a EUR2.5bn low-interest loan to help prop up its banks, which dominate the economy and are estimated to require a total of €7bn-10bn to stay afloat.

The race is on.

Source: bne