UPDATE 1-Euro zone urges Cyprus to propose how to reach bailout

Thu Mar 21, 2013 6:12pm EDT

By Jan Strupczewski

BRUSSELS, March 21 (Reuters) - Euro zone finance ministers urged Cyprus on Thursday to say how it could reach a deal with international lenders that would save it from bankruptcy after the Cypriot parliament rejected the conditions of a bailout offer.

Since the terms were rejected, the ministers expected Cyprus to propose how it wanted to change the bailout, but the main parameters needed to stay the same, Jeroen Dijsselbloem, who chairs the ministers' meetings, said in a statement.

"The Eurogroup would subsequently, on the basis of a Troika analysis that needs to be undertaken, be prepared to continue negotiations on an adjustment programme, while respecting the parameters defined earlier by the Eurogroup," he said after a teleconference with ministers.

The Troika are the representatives of the International Monetary Fund, the European Central Bank and the European Commission.

Cypriot lawmakers this week rejected an unprecedented tax on bank deposits proposed as part of a 10-billion euro ($13-billion) bailout from the EU and IMF.

Euro zone ministers said on Monday the one-off levy on deposits should only be applied to savings higher than 100,000 euros and they repeated that on Thursday.

"The Eurogroup reaffirms the importance of fully guaranteeing deposits below 100,000 in the EU," the statement said.

The Cypriot government said party leaders had agreed to create a "solidarity fund" that would bundle state assets as the basis for an emergency bond issue, but the speaker of parliament, Yiannakis Omirou, insisted a revised levy on uninsured bank deposits was not on the table.

The governor of the central bank said it would impose a plan to avoid bankruptcy at the second biggest lender, Cyprus Popular Bank, but it remained unclear how measures would work.

The government submitted a bill seeking the power to impose capital controls on banks, a type of measure unseen since before the country joined the EU single currency bloc five years ago.

European Commission spokesman Simon O'Connor said there appeared to be "an improved spirit of cooperation" by the Cypriot authorities.

"In particular we welcome the Cypriot authorities' assurances that they will present in detail ... their alternative proposal for covering the part of Cyprus' financing needs outside of the agreed financing envelope. Our staff will assess this proposal carefully as of tomorrow morning," he said.

"We are conditionally satisfied that the bills on bank resolution and restriction of capital movements are moving through the legislative process ... These laws ... are absolutely essential at the current juncture," O'Connor added.

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