[h=3]By GABRIELE STEINHAUSER[/h]BRUSSELS—Euro-zone finance ministers were in Brussels on Sunday trying to reach a bailout deal for Cyprus, with just a day to go before a hard deadline set by the European Central Bank.
The Mediterranean island has kept Europe in suspense for much of this week, after its parliament rejected a tax on depositors that was supposed to raise €5.8 billion ($7.5 billion) to stabilize Cyprus's two biggest banks and secure a €10 billion bailout from the euro zone and the International Monetary Fund.
Associated PressBank employees protested in Cyprus on Saturday. Euro-zone finance ministers met Sunday in Brussels trying to reach a bailout deal.
The ECB said Thursday that it would cut off emergency liquidity to Cyprus's banking system on Monday night if no new bailout deal has been reached by then. That would prevent banks on the island from opening as planned on Tuesday and would quickly send Cyprus's financial system into free fall, potentially forcing the country to leave the euro zone.
"We are a week further and substantial damage has been inflicted on the Cypriot economy," said Dutch Deputy Finance Minister Frans Weekers as he arrived in Brussels. "So I wouldn't be surprised if [Cyprus's financial needs] will be more."
That concern was echoed by German Finance Minister Wolfgang Schäuble. "The numbers haven't changed; if anything they have gotten worse," Mr. Schäuble said.
Amid the uncertainty over the island's financial future, banks in Cyprus have been closed for more than a week and the government has severely restricted the free flow of money on and from the island. On Thursday, the Cypriot parliament passed a bill that would allow it to shut down the country's second-largest lender, Cyprus Popular Bank, and the government was still fighting to keep its biggest bank, Bank of Cyprus, alive.
Cyprus's financial system is in trouble because of losses from Greek government bonds, inflicted during a euro-zone-led debt restructuring last year, and a quickly deflating real-estate bubble. The effects have been magnified by the disproportionately large size of Cyprus's financial system relative to the country's economy; the financial system has been bloated by deposits from wealthy foreigners, many of them Russian.
It was because of this reliance on deposits, which have reached about four times the size of Cyprus's economy, that the euro zone and the IMF insisted that bank-account holders contribute to the cost of saving the country and its banks.
In an initial deal reached March 16, the Cypriot government agreed to levy a tax of 6.75% on deposits with less than €100,000 and 9.9% on those above that amount—an one-off move that was supposed to raise €5.8 billion.
But since Cyprus's parliament rejected that deal, the government has tried, and failed, to find other sources for that money. A trip to longtime ally Russia yielded no results and the euro zone rejected plans to nationalize Cyprus's pension funds and tap other domestic resources, arguing that that would only further raise the country's debt load.
"We are here to find a solution with Cyprus kept in the euro zone," said French Finance Minister Pierre Moscovici.
—Tom Fairless and Maarten van Tartwijk contributed to this article.Write to Gabriele Steinhauser at [email protected]
The Mediterranean island has kept Europe in suspense for much of this week, after its parliament rejected a tax on depositors that was supposed to raise €5.8 billion ($7.5 billion) to stabilize Cyprus's two biggest banks and secure a €10 billion bailout from the euro zone and the International Monetary Fund.
Associated PressBank employees protested in Cyprus on Saturday. Euro-zone finance ministers met Sunday in Brussels trying to reach a bailout deal.
The ECB said Thursday that it would cut off emergency liquidity to Cyprus's banking system on Monday night if no new bailout deal has been reached by then. That would prevent banks on the island from opening as planned on Tuesday and would quickly send Cyprus's financial system into free fall, potentially forcing the country to leave the euro zone.
"We are a week further and substantial damage has been inflicted on the Cypriot economy," said Dutch Deputy Finance Minister Frans Weekers as he arrived in Brussels. "So I wouldn't be surprised if [Cyprus's financial needs] will be more."
That concern was echoed by German Finance Minister Wolfgang Schäuble. "The numbers haven't changed; if anything they have gotten worse," Mr. Schäuble said.
Amid the uncertainty over the island's financial future, banks in Cyprus have been closed for more than a week and the government has severely restricted the free flow of money on and from the island. On Thursday, the Cypriot parliament passed a bill that would allow it to shut down the country's second-largest lender, Cyprus Popular Bank, and the government was still fighting to keep its biggest bank, Bank of Cyprus, alive.
Cyprus's financial system is in trouble because of losses from Greek government bonds, inflicted during a euro-zone-led debt restructuring last year, and a quickly deflating real-estate bubble. The effects have been magnified by the disproportionately large size of Cyprus's financial system relative to the country's economy; the financial system has been bloated by deposits from wealthy foreigners, many of them Russian.
It was because of this reliance on deposits, which have reached about four times the size of Cyprus's economy, that the euro zone and the IMF insisted that bank-account holders contribute to the cost of saving the country and its banks.
In an initial deal reached March 16, the Cypriot government agreed to levy a tax of 6.75% on deposits with less than €100,000 and 9.9% on those above that amount—an one-off move that was supposed to raise €5.8 billion.
But since Cyprus's parliament rejected that deal, the government has tried, and failed, to find other sources for that money. A trip to longtime ally Russia yielded no results and the euro zone rejected plans to nationalize Cyprus's pension funds and tap other domestic resources, arguing that that would only further raise the country's debt load.
"We are here to find a solution with Cyprus kept in the euro zone," said French Finance Minister Pierre Moscovici.
—Tom Fairless and Maarten van Tartwijk contributed to this article.Write to Gabriele Steinhauser at [email protected]