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Cyprus says 'significant progress' in bailout talks

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(Globalpost/GlobalPost)

Cyprus reported "significant progress" in talks on Saturday with the EU and IMF aimed at clinching a 10 billion-euro ($13 billion) bailout to save the eurozone member from looming bankruptcy.

The Cypriot authorities are scrambling to raise 5.8 billion euros before a Monday deadline set by the European Central Bank or it will cut off emergency financial aid to the island.

"Significant progress has been made towards achieving an agreement with the troika," Finance Minister Michalis Sarris said after initial talks in Nicosia with officials from the troika of the EU, ECB and International Monetary Fund.

But "several issues arose that need further working on" in the talks, which centred on a proposal to impose a one-time charge on savings held at the Bank of Cyprus, the island's biggest lender.

The talks came after parliament passed a raft of bills late on Friday including to create a solidarity fund, impose capital controls and restructure an outsized banking sector.

Cyprus is considering imposing a tax of around 25 percent on deposits of more than 100,000 euros held at the Bank of Cyprus, after passing legislation to restructure Laiki Bank (or Popular Bank) into a "good" and "bad" bank.

But a Laiki economist told AFP the government was trying to convince the troika such a rate was too high.

"They are trying to convince the troika to take a lower 'haircut' than 25 percent because parliament might not accept it," said Yiannis Tirkides, adding the Eurogroup might reject anything lower.

As the talks at the finance ministry dragged on into the evening, acting ruling Disy party leader Averof Neophytou would say only that: "We are on the right road."

President Nicos Anastasiades was due to update Neophytou and other party leaders on the negotiations at 8 pm (1800 GMT).

But their slow pace threatened the timetable for getting the necessary legislation through parliament so that he and his team can get to Brussels for a crunch meeting with Eurogroup ministers called for 1700 GMT on Sunday.

That meeting is expected to coincide with direct talks at the same Brussels headquarters between Anastasiades and EU heads Herman Van Rompuy and Jose Manuel Barroso.

EU sources have said if no deal is reached, the 27-nation bloc is ready to eject Cyprus from the eurozone to prevent contagion of other debt-hit members such as Greece, Spain and Italy.

Additional parts of the package that require legislation must go before the finance committee before they can be put to the vote in parliament, and state news agency CNA quoted an official as saying that MPs were not expected to convene until Sunday.

Neophytou said it was possible that a deal could be done on Bank of Cyprus that would not require the approval of MPs. He did not elaborate, but there has been talk of the bank being subject to a similar restructuring to Laiki rather a haircut on deposits.

At least 1,000 Cyprus bank staff marched on parliament to protest what they see as the hit on their jobs and pensions being imposed in a desperate effort to reach a deal by the EU deadline.

"If you don't secure our pension fund, we will go on strike from Tuesday," union chief Loizos Hadjicostis told the crowd.

Were a strike call widely respected, it would be a massive blow to an economy already reeling under a bank closure of more than a week that has seen many businesses start refusing all but cash transactions.

Bank employee Anthoulla Tiba hit out at measures she saw as being imposed by Germany, which has repeatedly warned that its patience with Cyprus is running out.

"What Hitler couldn't do with guns it is being done to us now with the economic war," she said.

The contentious levy on bank deposits was already rejected by parliamentarians as "blackmail" on Tuesday, albeit in a different form.

But with the deadline looming and the option of securing funding from elsewhere, including from ally Russia, exhausted, MPs have been forced to revisit it as an option to help raise the 5.8 billion euros.

The option of deposits over the 100,000 euro threshold being transferred into a bad bank is an alternative little more attractive for Bank of Cyprus savers than a large haircut.

Economist Tirkides said people's deposits would be "blocked" for years while the new bad bank absorbs its non-performing loans, which he put at about 30 percent of all Laiki lending.

"The philosophy seems to be that the banks who have the problem are the ones that should pay," he said.

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http://www.globalpost.com/dispatch/news/afp/130323/cyprus-says-significant-progress-bailout-talks-1