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Cyprus turns to Russia as bailout deal stumbles

Charlie Charalambous
A man and a woman withdraw money from cash-points in Nicosia. Cyprus turns to Russia as President Nicos Anastasiades battles to garner support from lawmakers for a controversial eurozone bailout deal that the central bank warned was in danger of collapse

Cyprus turned to Russia on Tuesday as President Nicos Anastasiades battled to garner support from lawmakers for a controversial eurozone bailout deal that the central bank warned was in danger of collapse.

State radio reported that a parliamentary vote due later Tuesday may be postponed while the presidency announced Anastasiades had called an emergency meeting of party leaders for Wednesday to "examine alternative plans."

Commentators believe that if the measure is put to the vote on Tuesday it will not secure enough support as Anastasiades does not have a clear majority in the 56-seat parliament.

The president's own Disy party has unanimously decided to abstain because "it will strengthen the bargaining position of the Republic of Cyprus," Nicos Tornaritis told Sigma television.

The private broadcaster said that all other parties in the Cypriot parliament would also abstain from voting for the bill.

Uncertainty about the vote comes despite changes by Cyprus to the terms of the the 10-billion-euro ($13 billion) deal sealed with eurozone partners at the weekend.

The revised plan, drafted Tuesday in response to an angry backlash at home and jitters that roiled global markets, sees a one-time levy being dropped on bank savings below 20,000 euros but retained at 6.75 percent on deposits of 20,000-100,000 euros and at 9.9 percent for amounts above 100,000.

Under the original accord, Cyprus agreed to impose a levy of 6.75 percent on bank accounts up to 100,000 euros and 9.9 percent for larger deposits. The move was aimed at raising 5.8 billion euros for the government.

The changes prompted a warning by Central Bank governor Panicos Demetriades that the bailout deal could collapse as it will now no longer "yield the estimated 5.8 billion euros agreed by the Eurogroup".

"If we secure 5.5 billion it will be considered in breach of the agreement and perhaps will not be accepted," Demetriades told parliament's finance committee, as cited by the Cyprus News Agency.

Fearing a run on accounts, Cyprus has shut it banks until at least Thursday, with the local stock exchange closed for the same period.

A Cyprus government spokesman said Anastasiades would have further telephonic discussions on the terms of the bailout with German Chancellor Angela Merkel later Tuesday, after a first round of talks on Monday.

With Cyprus appearing to be heading for a showdown with the European Union and International Monetary Fund over the details of the bailout package, Europe's main stock markets slid for the most part on Tuesday.

Frankfurt's DAX 30 shed 0.32 percent while in Paris the CAC 40 lost 0.73 percent. London's benchmark FTSE 100 index of top companies managed a 0.11 percent gain in afternoon trading.

And as the island leaders raced to stave off bankruptcy, Finance Minister Michalis Sarris headed to Moscow to seek an extension to an existing Russian loan.

Finance ministry director Andreas Charalambous told reporters that securing an extension to the loan was "very important" as it would throw Cyprus an economic lifeline.

"The first issue is we have a large loan maturing in 2016 and if we manage to come to an understanding this will help facilitate our debt repayments and debt sustainability," Charalambous said.

"If we manage to extend the loan the refinancing needs of the economy would be manageable. So its very important."

"There are other options the minister is going to discuss with the Russian government and investors as our ambitions are going beyond the extension of the loan. We will see if there is potential interest for further investment," Charalambous added without elaborating.

Moscow extended Nicosia a 2.5-billion-euro loan in 2011 at a rate of 4.5 percent.

Sarris's goal was to lower that rate and extend the loan's expiration date until 2020 from 2016, media reports said.

However talks were likely to be awkward given the levy demanded by the EU -- Russians have billions of euros deposited in the island's banks.

Russian President Vladimir Putin slammed the "dangerous" move and turmoil hit stock and currency trades on Monday amid concerns that a precedent had been set for bigger debt-saddled eurozone economies such as Italy and Spain.

Estimates vary but the Moody's rating firm estimates that Russian companies and banks keep up to $31 billion in Cyprus, which accounts for between a third and half of all Cypriot deposits.