The clock in Nicosia is ticking a lot louder: Tiny Cyprus has four days to come up with about €6 billion ($7.5 billion) or lose its current lender of last resort, the European Central Bank (ECB).
Tensions and emotions are high after ECB officials declared on Thursday that Cyprus must guarantee a €10 billion ($13 billion) bailout by Monday or forfeit and presumably go into default, with unknown consequences for the eurozone economy and beyond.
Cypriot officials are scrambling to conjure new sources of revenue – a so-called Plan B – including a look at pension fund leveraging and sales of offshore gas exploration prospects. The finance minister and energy minister have now lingered in Moscow for a second day of talks regarding a potential bailout deal with Russia.
Cypriot banks will remain closed this weekend even as bankers there worry about huge outflows of capital next week if some kind of deal, whether with the European Union or Moscow, is not in the offing. (Reportedly Russian officials yesterday told their EU counterparts they would not add to a current €2.5 billion ($3 billion) loan to Cyprus.)
Cypriot lawmakers vowed Thursday that they would not raise again the idea of a levy or tax on private accounts. However, EU and ECB authorities continue to state that available resources are so limited that the Cyprus parliament will need to revisit the issue, perhaps in a smaller percentage.
Meanwhile, Reuters notes, EU officials continue to up the ante and put pressure on Cyprus. "I cannot rule out a Cyprus insolvency," Austrian Finance Minister Maria Fekter told the newspaper Oesterreich. "A euro exit would not achieve anything. Cyprus must act now."
The ECB hard deadline comes a day after Cypriot lawmakers rejected the controversial EU terms of the bailout, engineered mysteriously last week, which require a “tax” allowing Cypriot authorities to reach into the accounts of private bank deposits and withdraw some 10 percent of funds in accounts over €100,000 ($130,000) and about 7 percent in accounts under that figure.
The idea of such a tax brings mingled perplexity and outrage in many parts of the world, but especially in Russia, which uses Cyprus as an offshore tax haven.
Deposits in Cyprus’s banks were seven times the size of its economy at the end of 2012, an unusual situation fostered by low taxes and reputation for lax regulation. Many European policymakers suspect it is a hub for Russian money laundering. Cypriot banks hold $88 billion in deposits, of which $49 billion is in the form of deposits over $129,000, according to analysts’ estimates.
The Christian Science Monitor reports that Moscow is playing “hardball” with the Cypriot finance minister in order to protect its massive stake in Cyprus' banking system.
According to official Russian figures, more than $114 billion has flowed into Russia since 2007 from Cyprus, almost all of it in the form of dividends paid by Cyprus-registered holding companies. Big Russian firms, including most metals giants, the state-owned banks Sberbank and VTB, and the independent gas producer Novatek all have important holdings in Cyprus.
"The price of crisis in Cyprus is very high for Russia," says Igor Nikolayev, director of strategic planning for one of Russia's leading auditing firms.