Partial Cyprus 'haircut' deal triggers new eurozone meeting

The eurozone signalled Saturday that tough negotiations with reluctant Cyprus over a massive 'haircut' on major deposits in its biggest banks had delivered a breakthrough, as the Eurogroup head called for a new meeting of finance ministers.

Confirmation of a meeting on Sunday at 1700 GMT in Brussels came after Cypriot Finance Minister Michalis Sarris cited "significant progress" in ground-level talks with the European Union and the International Monetary Fund in Nicosia.

In parallel on Sunday, EU heads Herman Van Rompuy and Jose Manuel Barroso, European Central Bank chief Mario Draghi and IMF boss Christine Lagarde are also set to huddle with Cyprus President Nicos Anastasiades, sources indicated, without confirming Draghi and Lagarde's attendance yet.

The meetings are to nail down a bailout of up to 10 billion euros in loans for the Cyprus government, which can get the island's banks reopened after a 10-day lockdown amid fears of massive capital flight, notably from high-level Russian investors.

However, after a planned grab on all savings, from oligarchs to pensioners, triggered political revolt with not one lawmaker in Nicosia voting for the measure, the focus is again on the biggest investors who face a huge "haircut" and seeing their money tied up for years in a so-called "bad bank" created for the purpose.

As lawmakers pored over the details, angry bank workers fearing job losses descended on the Cypriot parliament.

"Eurogroup tomorrow 6:00 pm (1700 GMT) will be in Brussels," said Jeroen Dijsselbloem, head of the group and also the Dutch finance minister. The face-to-face talks will take place after a week of repeated conference calls over the crisis.

The ECB had given Cyprus until Monday to fill a hole in national accounts worth up to six billion euros -- the entry condition for securing bailout loans.

An EU source said a deal was reached on Saturday to break up Laiki (or Popular) Bank, the island's second largest, but that no decision had yet been taken on its No.1 lender, the Bank of Cyprus.

Rather than tax residents' and non-residents' deposits across the board, even on a sliding scale that protected smaller accounts, the negotiations have returned to focus on a "haircut" for the biggest.

That means creating a "good" bank holding safe loans and deposits covered by the EU's 100,000-euro guarantee threshold; and a "bad" bank holding dodgy credit and, crucially, those deposits placed in the two main lenders worth more than 100,000.

Money channelled into this "bad" bank could be tied up for years as the authorities absorb losses from soured loans, with the level of this involuntary "haircut" tipped at least in the 25-percent area.

Deposits of more than 100,000 in other Cypriot banks would also face a one-off "levy" which would likely be for the 9.9 percent initially agreed before the first deal unravelled.

In an indication of the shifting unease in Cyprus depending on which route is taken to plug the gap in the government's finances, hundreds of bank workers sensing the axe marched on the presidency ahead of a planned protest outside parliament.