The European Central Bank has given the Cypriot government until Monday to agree a bailout plan for the island’s banks, teetering on the verge of bankruptcy.
If no deal is agreed, the ECB has said that it will cut off funding to Cyprus, which risks provoking a financial meltdown in the island republic.
In a statement, the Frankfurt-based bank said its governing council had decided it would maintain the current level of Emergency Liquidity Assistance (ELA) until Monday, March 25th, but if no deal is reached, then ELA payments would be suspended.
A spokesperson for the bank said: “Thereafter, Emergency Liquidity Assistance (ELA) could only be considered if an EU-IMF programme is in place that would ensure the solvency of the concerned banks.”
Cyprus has stared bankruptcy in the face since Tuesday, when a massively unpopular bailout plan, which would have seen a levy on the bank deposits of ordinary savers, was overwhelmingly rejected by the country’s parliament. The levy provoked fury amongst the Cypriot population, who felt they were being unfairly penalised for the mistakes made by the banking sector.
The government now hopes to create a new bailout plan that can avoid a levy on bank deposits. The government announced today that it would bundle together state assets in an attempt to create a “solidarity fund” which can be used as the basis of an emergency bond issue. The Speaker of the Cypriot parliament, Yiannakis Omirou, insisted that a levy on bank deposits was not on the table.
The government is also in talks with Russia, seeking an injection of funds from Moscow. Many of the larger bank deposits held by Cypriot banks belong to Russian investors, some of whom are suspected by the ECB of money-laundering.