Cypriot Parliament Faces Bankruptcy Deadline

The tiny Mediterranean island-nation of Cyprus is teetering on the edge of insolvency after rejecting a tax on bank deposits imposed by the E.U. and IMF in exchange for a bailout. Cyprus has until Monday to approve a new bailout plan.

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STEVE INSKEEP, HOST:

It's MORNING EDITION, from NPR News. Renee Montagne is visiting our member station KAZU in Monterrey, California on this Friday. I'm Steve Inskeep. All this week, we've been watching a tiny island nation in the Mediterranean, a country whose beautiful setting belies the trouble its banks are in.

Cyprus is trying to avoid the collapse of its banking system, and also trying to avoid giving bank depositors a haircut. That leaves Cyprus scrambling for another plan, which is the subject of today's Business Bottom-line. Here's reporter Joanna Kakissis.

JOANNA KAKISSIS, BYLINE: Cyprus has until Monday to approve the new bailout plan. That's when the European Central Bank has threatened to withdraw funds that are supporting the Cypriot banking system. But that system could be full of dirty money from Russian oligarchs. That's what leaders from the European Union and International Monetary Fund say.

So they're pushing for large deposit-holders in Cypriot banks to subsidize at least half of the $13 billion bailout. Here's Zsolt Darvas of the Bruegel Institute in Brussels.

ZSOLT DARVAS: The interest rate - deposit interest rate in Cypriot bank is four-and-a-half percent, while the deposit rates in German banks is just 1 percent. So they choose a bank which offered a higher return and, you know, that bank went bust. So if you invest in something which is go bust, then, I mean, you have to face losses.

KAKISSIS: But Cypriot lawmakers have refused to tax people's savings. So they're trying to raise money by creating a national solidarity fund that would issue bonds. This fund would contain assets such as gold reserves and future revenues from natural gas deposits recently discovered off the island's coast.

ARCHBISHOP CHRYSOSTOMOS, CYPRIOT ORTHODOX CHURCH: (Foreign language spoken)

KAKISSIS: Chrysostomos, the archbishop of the powerful Cypriot Orthodox Church, told reporters that the church is also willing to mortgage its own assets, which include land and shares in a lucrative beverage company. The government is also trying to reduce the size of the bailout by restructuring its banking system.

PANICO DEMETRIADES: (Foreign language spoken)

KAKISSIS: Panicos Demetriades, the governor of the Central Bank of Cyprus, promised protection for those who had less than $130,000 in deposits. But what happens to people with more than that in the bank, like the Russians? They've invested billion here. That's why Cypriot Finance Minister Michalis Sarris flew to Moscow this week to work out a loan deal, something that irritated eurozone leaders. Sarris spoke by telephone to Cypriot TV.

(SOUNDBITE OF TV BROADCAST)

MICHALIS SARRIS: (Through translator) We have the European Union saying: Why are you going to Russia, when this is a family affair? But when your family won't help unless you agree to unacceptable measures, then lectures you about reaching out to someone else, what are you supposed to do?

KAKISSIS: But so far, Sarris has not gotten a deal from Moscow, so all eyes are on Brussels. Eurozone leaders must approve any plan B by Cyprus, and everyone is nervous. Cyprus plans to limit withdrawals to prevent bank runs next week when the banks are set to finally reopen. For NPR News, I'm Joanna Kakissis, in Athens.

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