Cyprus in last-ditch bailout talks in Brussels

Cyprus President Nicos Anastasiades entered emergency talks with the island's international creditors Sunday seeking to avert bankruptcy in a crisis that is again threatening the stability of the wider eurozone.

The clock is ticking for the tiny country after the European Central Bank threatened to halt life-support funding if there is no deal by Monday, a day before Cyprus's banks are due to reopen after a 10-day shutdown.

Cyprus and its creditors are trying to nail a deal that will restructure the island's banks and deliver up to six billion euros ($8 billion) from large bank deposits in order to resurrect an agreement for a bailout worth up to 10 billion euros ($13 billion).

"Unfortunately, the events of recent days have led to a situation where there are no longer any optimal solutions available. There are only hard choices left," European Union economics head Olli Rehn warned Saturday.

He acknowledged that Cypriot leaders faced hard choices to try to limit the damage from the blow to its bloated banking sector, after a firestorm of protest over the EU plans to impose a special levy on bank customer deposits that caused global concern.

Rehn said he welcomed "progress" made towards meeting the EU-IMF demands but said it was essential that an agreement was reached on Sunday night.

"The negotiations are at a very delicate stage. The situation is very difficult and the time limits are very tight," Cypriot government spokesman Christos Stylianides said.

Anastasiades's cortege complete with police escort entered EU headquarters in Brussels shortly after 2:00 pm (1300 GMT), an AFP correspondent said. That followed a pit-stop in Athens on a special plane laid on by the European Commission, the Cypriot government said in a statement.

Anastasiades was to meet with ECB head Mario Draghi, IMF managing director Christine Lagarde, EU president Herman Van Rompuy, European Commission president Jose Manuel Barroso, Eurogroup chairman Jeroen Dijsselbloem and Rehn, sources told AFP.

Dijsselbloem will also bring in the finance ministers from all 17 currency partners from 1700 GMT for what is likely to prove yet another sleepless night in snow-covered Brussels.

One of those, France's Pierre Moscovici, said on television before leaving for Brussels that it was time to put an end to "casino economy" practices on Cyprus.

"If we don't, it's you, it's me, it's all of us who will be left picking up the tab," Moscovici said.

The volume of Cyprus sovereign aid is a pittance compared to Nicosia's closest ally Greece, which needed hundreds of billions all told in the eurozone's first bailout three years ago.

But with Cypriot banks in lockdown already for 10 days, the fallout from the current crisis could infect other troubled economies.

"We have learnt down the years that even little problems can become intractable," said Holger Schmieding, chief economist with Germany's Berenberg Bank. "There's just no telling what can unfold in this type of situation."

German Finance Minister Wolfgang Schaeuble also warned that if Cyprus was to stay in the eurozone it had to meet the terms of the rescue package.

"The eurozone countries want to help Cyprus, but the rules must be respected, the aid must be relevant and the programme must tackle the problems at their root," he told Welt am Sonntag newspaper.

Cypriot reports suggested officials had made progress with EU and IMF representatives, having agreed a 20 percent haircut on Bank of Cyprus and a 4.0 percent levy on other banks.

A radical restructuring of the island's second largest lender Laiki (Popular Bank) will see all deposits over 100,000 euros put into a "bad bank" where they will be tied up for years and may never be fully recovered.

But negotiations stumbled on EU-IMF demands for a substantial levy on deposits above the same threshold in the Bank of Cyprus to avoid it facing similar restructuring. It holds more than a third of all deposits.

The haircut would take the form of a bond or share swap in a bid to get the measure through parliament, after MPs flatly rejected an earlier plan for a levy on all deposits.

Cyprus negotiators had been desperate to avoid the Bank of Cyprus being subjected to the same bitter pill imposed on Laiki.

A threat to Bank of Cyprus's pension fund sparked an angry march on parliament by bank staff on Saturday and a threat of industrial action.