* Finance minister discussing banking, energy cooperation
* President, party leaders on "Plan B"
* ECB says to cut off bank funds without bailout deal by
* Russia says EU behaving like "bull in a china shop"
* Eurogroup chairman says Russia won't lend Cyprus more
By Michele Kambas and Paul Carrel
NICOSIA/FRANKFURT, March 21 The European Central
Bank gave Cyprus until Monday to raise billions of euros to
clinch an international bailout or face losing emergency funds
for its banks and inevitable collapse.
The ultimatum came as the island's leaders struggled over a
"Plan B" to try to raise 5.8 billion euros demanded by the EU
under a 10 billion euro ($13 billion) rescue, after angry
lawmakers threw out a tax on deposits as "bank robbery".
The 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 parliament speaker Yiannakis
Omirou insisted a revised levy on larger bank deposits, many of
them held by Russians, was not on the table.
The European Central Bank, which has kept Cyprus's banks
operating with a liquidity lifeline, said the government had
until Monday to get a deal in place, or funds would be cut off.
"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," it said.
Cyprus's central bank governor said he expected to clinch a
financial support package by then. He did not say how.
The government has ordered banks to stay closed until
Tuesday. The stock exchange also suspended trading for the rest
of the week.
There were long queues at some bank branches in Nicosia as
staff replenished cash machines, which have continued to operate
while banks have been closed since last week.
In Moscow, Cypriot Finance Minister Michael Sarris said he
was discussing possible Russian investments in the island's
banks and energy resources to reduce its debt burden, as well as
an extension of an existing 2.5-billion-euro Russian loan.
Russian citizens have billions of euros to lose in the
island's outsized, teetering banking sector.
"The banks are the ultimate objective in any support we get,
so it'll either be a direct support to the banks or the support
that we get through other sectors will be channelled to the
banks," Sarris told Reuters during a second day of talks with
his Russian counterpart, Anton Siluanov.
He said Cyprus had no plans to borrow more money from Russia
and add to its debt mountain. The Russian Finance Ministry had
said on Monday that Nicosia sought an extra 5-billion-euro loan.
The chairman of euro zone finance ministers, Dutchman Jeroen
Dijsselbloem, told the European Parliament that Moscow had
informed the EU it had no intention of ploughing more money into
Cyprus beyond the existing loan.
"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," he said. "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."
Dijsselbloem said new loans from Russia would anyway not
solve the debt issue, and that a revised levy on larger bank
deposits was still a possibility.
"I'm not sure that this package is completely gone and
failed, because I don't see many alternatives," he told the
European Parliament in Brussels.
Senior euro zone officials acknowledged in a confidential
conference call on Wednesday that they were "in a mess" and
discussed imposing capital controls to insulate the currency
area from a possible collapse of the Cypriot economy.
Cyprus refused to take part in the call, minutes of which
were seen by Reuters. Several participants described its absence
as troubling and reflecting the wider confusion surrounding the
EU officials believe at least some of the 5.8 billion they
are demanding should come from the 68 billion euros in Cypriot
banks, 38 billion of which are in the form of large deposits of
more than 100,000 euros, mainly from foreigners.
But hitting small savers caused visceral outrage, and the
Cypriot government fears that foisting too big a burden on large
depositors would wreck the offshore financial industry that
forms much of the country's economy.
Among the other options, nationalising pension funds of
semi-public companies could yield between 2 billion and 3
billion euros, although European officials say it would raise
less. Issuing bonds linked to future natural gas revenue is
problematic because pumping any gas is years away.
"BULL IN A CHINA SHOP"
Doubts about the fate of the small nation of just 1.1
million people has shaken confidence in the single-currency euro
zone and raised geopolitical tension between the EU and Russia.
Russian Prime Minister Dmitry Medvedev, who meets a European
Commission delegation in Moscow on Thursday, said the bloc had
behaved "like a bull in a china shop". He likened EU proposals,
which would force Russian customers to contribute to the rescue
of Cypriot banks, to Soviet-era expropriations.
Tuesday's parliamentary vote marked a stunning rejection of
the kind of strict austerity accepted over the past three years
by crisis-hit Greece, Portugal, Ireland, Spain and Italy.
European officials maintained the pressure on Nicosia.
"I cannot rule out a Cyprus insolvency," Austrian Finance
Minister Maria Fekter said in an interview with the newspaper
Oesterreich. "A euro exit would not achieve anything. Cyprus
must act now."
With Cypriot Energy Minister George Lakkotrypis also in
Moscow, officially for a tourism exhibition, speculation was
rife that access to untapped offshore gas reserves could be on
the table as part of a deal for Russian aid.
Cyprus is a haven for billions of euros squirreled abroad by
Russian businesses and individuals - one of the reasons why
Germany and other northern euro zone states are reluctant to
bail it out without a contribution from bank depositors.
The island's banking sector was hollowed out by its exposure
to bigger neighbour Greece.
The proposed levy on deposits would have taken nearly 10
percent from accounts over 100,000 euros. Smaller accounts would
also have been hit, although the government proposed softening
the blow to spare savers with less than 20,000 euros.
Cypriots were enraged at the proposal to tax accounts with
less than 100,000 euros, which are meant to be protected by
state guarantees across the European Union.
Marinos Panaretou, a 36-year-old retail manager, said he had
been withdrawing the maximum 500 euros every day since Saturday,
when news broke of the proposed levy.
"People feel safer if we have cash on us because you don't
know what you're going to wake up to," he said. "Quite simply,
you don't know what's going to happen tomorrow."
European officials say the Cypriot government could have
protected small savers if it imposed a higher tax on big
deposits, but it refused to do so to protect the rich foreign
clients of its offshore banking business.
EU leaders are growing increasingly exasperated with Cyprus,
while the threat of bankruptcy for a member of the euro zone,
however small, raises fears for confidence in the currency.
"There is no obligation to accept help," said Polish Foreign
Minister Radoslaw Sikorski, whose country does not use the euro.
"Cyprus has the possibility of living with its own mistakes."