Cyprus's parliament on Friday partly approved a revised formula for obtaining an international bailout to avert a default, amid strong signals that the plan would not pass muster with international lenders.
But they put off voting on a crucial new proposal until later this weekend – one that would confiscate a stunning 22 per cent to 25 per cent of uninsured deposits over €100,000 through a new tax to be placed on account holders in one of the nation's most troubled banks.
And so, going into the weekend ahead of a Monday deadline imposed by the European Central Bank, it appeared there was still no immediate path to a lifeline of €10-billion that Cyprus needs to keep its banks from collapsing.
Monday is a national holiday, but banks are supposed to reopen on Tuesday for the first time in more than a week, and there is widespread fear of a classic bank run, as investors of all sizes drain their accounts.
Meanwhile, Cypriots jammed into supermarkets Friday to fill up on food and basic goods, after lining up all day Thursday at teller machines to withdraw as much cash as possible. Gas stations were only taking cash payments, and some retailers reported that they would no longer accept credit.
One of the provisions approved by parliament on Friday would impose new restrictions on withdrawing cash or moving money out of the country when the banks reopen. These new capital controls would prohibit or restrict cheque cashing and bar "premature" account closings or any other transaction the authorities deem unwarranted.
Lawmakers also voted to restructure the nation's largest and most troubled bank, Laiki Bank, by hiving off its troubled assets into a so-called bad bank. Accounts with no problem would be transferred to the nation's largest financial institution, the Bank of Cyprus, which lawmakers are now proposing to hit with a 22- to 25-per-cent tax on uninsured deposits.
That measure, which will be considered in coming days, was revived after lawmakers this week voted down a plan to skim funds from insured deposits to help raise billions of euros demanded by international lenders to secure the bailout.
When euro-zone finance ministers hashed out the original bailout terms last weekend, Cypriot officials had resisted limiting the tax to large accounts, evidently to avoid damaging the country's reputation as a haven for wealthy banking clients. Many of the wealthiest citizens of Russia have euro-denominated bank accounts in Cyprus – one reason that euro-zone finance ministers have taken such a hard line.
Lawmakers also voted to require that any bank on the verge of bankruptcy be split apart the way Laiki will be.
Cyprus's so-called troika of lenders – the International Monetary Fund, the European Commission and the European Central Bank – still must approve the plan. President Nicos Anastasiades was scheduled to fly to Brussels Saturday to meet with European Union leaders, a spokesman said.
By effectively shutting down one of the banks needing support, the government could lower a €5.8-billion sum that its lenders had demanded in exchange for a bailout. The consolidation of Laiki, also known as Cyprus Popular Bank, effectively relieves the government of a large expense of supporting the banking system, which is verging on collapse under a mountain of loans to Greek businesses and individuals that have turned sour as that nation suffers a debilitating recession.
On Friday, Greece also struck a deal to have one of its biggest lenders, Piraeus Bank, take over the Greek-based units of Cyprus's three main banks. That move was meant to relieve Cyprus of the cost of supporting those units, while ensuring that Greek savers in those banks would be insulated from whatever new bailout terms might be struck.
The decision to tax uninsured deposits came after Cyprus proposed nationalizing pension funds of state-owned Cypriot firms.
The Cypriot government has ordered banks to keep automated teller machines filled with cash sos long as the banks themselves remain closed. But that has been of little help to the thousands of international companies that do banking in Cyprus and cannot transfer money in and out of those accounts to conduct business.