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Cyprus weighs tax of 15% on bank deposits in bailout deal

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(Globalpost/GlobalPost)

Cyprus plans a tax of up to 15 percent on bank deposits as part of a deal to secure bailout funds, state television said Friday, after Russia spurned its plea for an economic lifeline to stave off bankruptcy.

The announcement came as restive crowds, mostly bank employees anxious that their employers not be sacrificed in the deal, gathered outside parliament awaiting an emergency session expected to determine their future.

Cyprus has until Monday to raise 5.8 billion euros ($7.47 billion) to unlock loans worth 10 billion euros or face being denied European Central Bank (ECB) emergency funds in a move that would collapse its banks and devour its economy.

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 country increasingly isolated even as German Chancellor Angela Merkel warned that the patience of its European partners was wearing thin.

State television said that Cyprus in its new package to the troika -- the EU, ECB and International Monetary Fund -- would include a "haircut" of up to 15 percent on bank deposits above 100,000 euros.

Plans for a tax of 9.9 percent tax on amounts over 100,000 euros were knocked back by lawmakers when an initial plan was put to the vote on Tuesday, but with other attempts to secure funding proving fruitless, officials said the tax option was back on the table.

Government spokesman Christos Stylianides said authorities were locked in "hard negotiations with the troika" and that parliament would "soon be called upon to take the big decisions."

But with no final deal in sight more than 11 hours after parliament had been expected to meet in the morning, President Nicos Anastasiades took to his Twitter account to send out a distress signal: "The country must be saved."

"The House of Representatives will soon be called upon to make difficult decisions. There will be painful aspects, but the country must be saved," he 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, with Cyprus's chamber of commerce and employers' federation as well as its major banks Friday calling on MPs to reconsider their opposition to the tax.

Some among a crowd of 200 protesters outside parliament, mostly employees of Laiki, or Cyprus Popular Bank, who face losing their jobs, also urged MPs to reverse their opposition to the tax.

"The right thing to do was to accept the haircut the way it was suggested then," said bank worker Andreas Chrysafis.

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, the crisis should be solved by plutocracy."

Eurogroup president Jeroen Dijsselbloem said he was awaiting fresh proposals from Nicosia to finalise its plan with the clock ticking down.

"The situation is very uncertain, we're waiting for Cyprus to propose alternatives," Dijsselbloem told the Netherlands' ANP news agency.

Germany's Merkel said in Berlin that she wanted Cyprus to remain part of the 17-member eurozone but warned it against "exhausting the patience of eurozone partners."

Cyprus hopes of an economic lifeline from Russia proved to be 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.

"Our investors examined this issue and showed no interest," Russian news agencies quoted Finance Minister Anton Siluanov as saying.

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 to ensure the stability of their operations in Greece, 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-weighs-tax-15-bank-deposits-bailout-deal