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Cyprus MPs pass first parts of bailout as clock ticks

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(Globalpost/GlobalPost)

The Cyprus parliament finally gave its approval late Friday to the first three of eight measures hammered out by the government in a desperate bid to rescue an EU bailout by a Monday deadline.

But with the clock ticking down to a crunch Sunday meeting with Eurozone finance ministers, more contentious issues remained to be debated, including a tax of up to 15 percent on bank deposits of 100,000 euros ($129,000) and more.

MPs flatly rejected the levy in slightly different form last Tuesday.

Three days later, the deputies voted in favour of a national solidarity fund to be set up through the nationalisation of public and private sector pensions.

They also approved capital controls to prevent a run on the island's troubled banks when they are finally due to open on Tuesday after a more than week-long closure.

And they passed a restructuring plan drawn up by the central bank that will separate good debts from bad in the island's troubled banks, particularly second largest lender Popular Bank, or Laiki in Greek.

The bill, much the most contentious of the three approved, passed by 26 votes to two, with 25 abstentions.

Acting ruling Disy party leader Averof Neophytou had appealed to MPs to back the legislation saying it would guarantee all deposits of up to 100,000 euros ($129,000), although those with balances of more might have to wait years to get all their money back.

He said the plan would also secure some 8,000 jobs in Popular Bank although a few hundred might be lost in the restructuring.

MPs then adjourned shortly before midnight (2200 GMT) without setting a time for resuming their debate on the rest of the government's last-ditch package aimed at raising 5.8 billion euros ($7.47 billion) to unlock loans worth 10 billion euros.

The government needs to seal the package by Monday or face being denied European Central Bank (ECB) emergency funds in a move that would collapse the island's banks and devour its economy.

Commentators said that the government wanted to hold further talks on its new plans for the divisive "haircut" on deposits with the troika -- the EU, ECB and and the International Monetary Fund -- before putting it before parliament.

The emergency session, which did not begin until 10:30 pm (2030 GMT), came after restive crowds, mostly bank employees anxious that their employers not be sacrificed in the deal, demonstrated outside parliament through the day.

EU sources have said the bloc is ready to eject Cyprus from the eurozone to prevent contagion of other debt-hit members such as Greece, Spain and Italy.

Long-time ally Russia too cold-shouldered its offer of investment proposals, leaving the island increasingly isolated as German Chancellor Angela Merkel warned that the patience of its European partners was wearing thin.

Ahead of Friday's session, President Nicos Anastasiades took to his Twitter account to send out a distress signal.

"The House of Representatives will soon be called upon to make difficult decisions. There will be painful aspects, but the country must be saved," the president wrote.

Despite the 'haircut" option being drummed out of court by MPs on Tuesday, the mood has swung as the deadline looms ever closer and banks remain in lockdown, threatening to bring businesses to their knees.

Cyprus's chamber of commerce and employers' federation joined its major banks in calling on MPs to reconsider.

Some among a crowd of 200 protesters outside parliament, mostly employees of Popular Bank, who face losing their jobs, also demanded a change of heart.

Others, however, were strident in their opposition to the measure, with a group of about 30 hooded youths burning a European flag next to the parliament building in front of police barricades as they chanted, "The haircut is robbery."

Eurozone finance ministers and IMF chief Christine Lagarde will gather in Brussels on Sunday in a bid to finalise the Cyprus rescue before Monday's deadline.

"It'll be physical," one source told AFP.

As hopes rose slightly that a deal could be rescued, the euro picked up nearly one cent from Thursday's rout to trade, at 2100 GMT on Friday, at $1.2986.

But ratings giant Moody's downgraded the credit-worthiness of all three main Cyprus three banks, citing expectations of depositor losses, the imposition of capital controls and uncertainty over their recapitalisation plans.

Cyprus hopes of an economic lifeline from Russia proved illusory, and Finance Minister Michalis Sarris left Moscow on Friday after two days of talks without clinching an agreement.

Russian officials said two major state-owned energy firms had turned down deals proposed by Sarris to fill the 5.8-billion-euro shortfall left by the EU-IMF bailout offer.

But Prime Minister Dmitry Medvedev said later that Moscow "has not closed the door" on possible future assistance.

Greece's third biggest bank, Piraeus Bank, is to acquire the Greek subsidiaries of the Bank of Cyprus and the Popular Bank, a banking source said.

With the absorption, the subsidiaries become Greek banks and eligible for recapitalisation funds made available by the second bailout to Greece, rather than requiring Cyprus bailout money.

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http://www.globalpost.com/dispatch/news/afp/130322/cyprus-mps-pass-first-parts-bailout-clock-ticks-0