CYPRIOT LEADERS are holding crunch talks with the EU and IMF today, focusing on measures adopted by MPs in a last-ditch bid to save the country from a catastrophic bankruptcy.

The authorities on the Mediterranean island are scrambling to raise €5.8 billion this weekend, in order to lock down a €10 billion lending package from the European Commission, the European Central Bank and the International Monetary Fund.

EU sources have said that if no deal is reached, the bloc is ready to eject Cyprus from the eurozone to prevent contagion of other debt-hit members such as Greece, Spain and Italy.

The talks with the Troika are a prologue to a possible trip to Brussels by a delegation led by President Nicos Anastasiades, which could begin later today after the talks in Nicosia.

A decision on whether to travel to Cyprus for talks will be taken after this morning’s talks between finance minister Michalis Sarris and a delegation from the Commission, ECB and the IMF.

The official CNA news agency cited a source as saying the meeting in Nicosia would focus on the parliament’s approval late last night of at least three rescue measures hammered out by the government.

Other media reported the discussions would also deal with a contentious levy on bank deposits, with state television saying it could amount to a one-time charge of up to 25 per cent on savings of over €100,000 held at the Bank of Cyprus, the island’s largest lender.

A government spokesman said the meeting would focus on a legislative bill for “haircut” on deposits held at the Bank of Cyprus, but that Anastasiades and other party leaders – who may choose to join him in urging Brussels to seal the deal – would only fly to Brussels after parliament approved a controversial deposit tax.

Cyprus’ fate should be sealed by Monday, the deadline set by the ECB for Nicosia to secure a bailout deal with creditors. If no deal is set by then, the ECB will pull the plug on emergency funding.

Social unrest as banks remain shut

Last night’s emergency session of parliament came as restive crowds, mostly bank employees anxious that their employers – and therefore their jobs – not be sacrificed in the deal, demonstrated outside.

Some 30 hooded youths burned a European Union flag next to the parliament building in front of police barricades.

“The haircut is robbery,” they chanted, referring to the most onerous measure yet to be presented before parliament – the tax on bank deposits that is still on the table.

The streets of Nicosia were deserted on Saturday, as anxious residents waited to see which way the crisis turns.

“People don’t know if they will have money tomorrow or the day after. We’ll try to live with what we have got now and we’ll see happens next,” said Yiorgos Andoniou, a jobless 57-year-old.

“We are in this situation because… we were living beyond our means for 25 years and now the bill has come,” said a woman identifying herself as Catherine.

“Eventually we’ll tighten our belts and go back to the practical and hard-working people that we were before.”

Yesterday MPs approved a solidarity fund to be created by nationalising pensions and capital controls to prevent a run on the island’s banks when they are finally due to reopen on Tuesday after a more than week-long closure.

They also passed a central bank restructuring plan that will separate “good” debts from “bad” in the troubled banks, particularly in second largest lender Laiki Bank (or Popular Bank).

The most contentious of the measures is the levy on bank deposits, a deeply unpopular scheme that parliamentarians have already rejected as “blackmail” once this week, albeit in a slightly different form.

Desperate times mean revisiting unpopular deposit levy

However, with the deadline looming and the option of securing funding from elsewhere including from ally Russia exhausted, MPs have been forced to revisit it as an option to help raise the necessary €5.8 billion.

Commentators said the government wanted to hold further talks on its new plans for the “haircut” with the Troika before putting it to parliament.

Acting leader of the ruling Disy party Averof Neophytou appealed to MPs to back the measures, saying all deposits of up to €100,000 would be guaranteed. Those with larger balances, however, might have to wait years to get all their money back, Neophytou said.

The plan would also secure some 8,000 jobs in Laiki Bank, although several hundred might be lost.

Laiki’s workforce – amounting to about one per cent of Cyprus’ 840,000 population – reflects the bloated size of the island’s banking sector targeted by the EU for restructuring.

Neophytou’s plea came as the clock ticked down to a crucial meeting in Brussels on Sunday of eurozone finance ministers and IMF chief Christine Lagarde in a bid to finalise the rescue package before Monday’s deadline.

“It’ll be physical,” one source told AFP.

German Chancellor Angela Merkel warned Cyprus against “exhausting the patience of eurozone partners,” at a meeting Friday with the parliamentary group of her Free Democratic Party coalition partners, participants told AFP.

- © AFP, 2013, with additional reporting by Gavan Reilly

Read: How the Cyprus bank closure is crippling business on the island