UPDATE 1-Levy on Cyprus depositors is inevitable -Eurogroup chief

Thu Mar 21, 2013 5:56am EDT

* Cyprus poses a systemic risk the euro zone -Eurogroup president

* Euro zone bailout still on the table, Jeroen Dijsselbloem says

* Dijsselbloem says Russia won't grant new loans to Cyprus

By Robin Emmott

BRUSSELS, March 21 (Reuters) - Russia is not going to come to Cyprus's rescue with new loans and any bailout of the Mediterranean island will have to involve some kind of levy on depositors, the man leading the euro zone's efforts to reach a deal said on Thursday.

Cyprus has faced the prospect of bankruptcy since Tuesday when its parliament voted unanimously against a levy on bank deposits to raise almost 6 billion euros ($7.5 billion) demanded by the euro zone, in addition to a 10 billion euro rescue.

Jeroen Dijsselbloem, who chairs meetings of euro zone finance ministers, said the deal offered early on Saturday was not dead and that there were few alternatives for Cyprus.

"It's probably inevitable there will be some kind of levy in the final package that we will agree upon," Dijsselbloem told the European Parliament.

"The levy I can strongly defend, because it is a direct way to ask a contribution of the deposits of the banking sector in Cyprus, which is inevitable if you want to a build a package which doesn't bring more loans and more debt to Cyprus," he said.

Warning that the problems in Cyprus pose a systemic risk to the euro zone, he said he hoped Cyprus could agree a fairer balance between depositors in their contribution to helping the country out of its difficulties.

"The vast amount of deposits in Cyprus are not really savers, they are investors," Dijsselbloem said.

At the centre of the furore is a proposal that puts the levy on both savers with under 100,000 euros on deposit as well as those over that level. Since there is in theory insurance on deposits up to 100,000 euros, the plan would hit small savers.

Dijsselbloem said he and his euro zone peers had urged Nicosia to avoid hitting accounts below 100,000 euros and to instead increase the levy on big accounts.

"The Eurogroup thinks it's very important that we should have a fair burden share, and that means a larger contribution from large depositors than, of course, from small depositors."

Dijsselbloem said Cyprus should not hold out hope that Moscow will come to the country's rescue if it cannot seal a deal with the Eurogroup, saying an extension of a Russian 2.5 billion loan was under discussion.

"Any other options, to go further, another loan or an investment in the banks, the Russians let us know that they are not willing to do that. "Of course, the Cypriot government is now talking to the Russian government whether more can be done, I don't know the outcome of that yet.

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