'Only hard choices' for Cyprus

LONDON (CNNMoney)

Negotiations between Cyprus and its would-be bailout partners at the European Union and International Monetary Fund continued through the weekend as the clock ticks down on the country's economy and its place in the eurozone.

"The events of recent days have led to a situation where there are no longer any optimal solutions available," Olli Rehn, the EU's top economic official, said Saturday. "There are only hard choices left."

Cyprus President Nicos Anastasiades and Finance Minister Michalis Sarris traveled to Brussels Sunday for talks with Rehn, and the heads of the European Commission, European Central Bank and IMF.

Eurozone finance ministers were joined by IMF Managing Director Christine Lagarde and ECB President Mario Draghi late Sunday for a make-or-break meeting on a rescue for Cyprus, without which it could become the first country to abandon the euro.

Related: What happens if the banks fail?

The tiny island nation needs to find a way to raise nearly €6 billion to satisfy the conditions of a €10 billion EU rescue or face meltdown when banks reopen Tuesday after a 10-day hiatus.

Late Friday, after a long debate, the Cyprus parliament passed bills to create a sovereign wealth fund, nationalize pension assets and impose strict limits on the movement of capital.

But still unresolved is one of the most controversial parts of the bailout plan -- a tax on deposits to fund the overhaul and recapitalization of the country's biggest banks.

The original EU bailout plan called for an unprecedented tax of on all bank deposits. Since then talks have focused on proposals that would protect deposits of less than €100,000 euros but impose a heavy tax -- perhaps 20% to 25% -- on larger accounts.

Officials have been scrambling to find ways to raise Cyprus' share of an EU bailout since parliament threw out the original terms last week.

Under the financial restructuring being considered, the country's second largest bank, Popular Bank of Cyprus, would be broken up and depositors under €100,000 protected.

The proposed tax on all accounts, including deposits covered by the national guarantee program, outraged Cypriots and prompted widespread condemnation for undermining the principle that ordinary savers should not pay for bank failures.

Related: Cyprus' natural gas gold mine

Without a rescue, the European Central Bank has said it will cut off the emergency funding that has been keeping the country's biggest banks afloat, potentially leading to Cyprus' exit from the eurozone.

Cypriots have been queuing at cash machines since the EU bailout proposal was first announced on March 16.

Cyprus has been brought to its knees by the losses that its oversized banking sector sustained on investments in Greece, as well as a deep recession.

Eurozone policymakers want Cyprus to stump up cash from its banks as part of the rescue to ensure the country's debt doesn't become unsustainable. The bailout, including Cyprus' contribution, is almost as big as the country's annual economic output.

And the EU believes wealthy foreigners who have profited from Cyprus' low tax rates should contribute. More than half of bank deposits are held by foreigners, many of them Russian.

First Published: March 24, 2013: 7:45 AM ET

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