'Cautious optimism' for solution to Cyprus crisis

A solution to Cyprus's bailout crisis within the framework set down by the European Union may be possible within "the next few hours".

The deputy leader of the island's ruling Democratic Rally party made the claim this afternoon.

"There is cautious optimism that in the next few hours we may be able to reach an agreed platform so parliament can approve these specific measures which will be consistent with the approach, the framework and the targets agreed at the last Eurogroup," Averof Neophytou said.

Earlier, it was reported the Cypriot parliament was to debate emergency legislation tabled by the government to confront the island's financial crisis.

The government had submitted bills proposing the creation of a solidarity fund of state assets and the imposition of capital controls on banks.

The solidarity fund would bundle state assets, including future revenue from the sale of gas reserves, as the basis for an emergency bond issue.

The government is also preparing measures to restructure its banking sector, including the ailing Cyprus Popular bank, which yesterday was rumoured to be close to collapse.

The European Central Bank said it would cut off liquidity to Cypriot banks without a deal.

Eurogroup head Jeroen Dijsselbloem has said eurozone finance ministers are focused on keeping Cyprus in the eurozone.

Asked whether Cyprus's exit from the eurozone was inevitable, he said: "All kinds of scenarios are possible and the scenarios we're focusing on are to come to a joint solution in which Cyprus is saved but in which the banking sector continues in a smaller but healthier form, and that's going to involve a lot of negotiations."

Cypriot Finance Minister Michael Sarris was due to fly home from Moscow today after failing to win support in two days of crisis talks with Russia on prolonging a bailout loan or on a possible new financing package.

Talks with Russian Finance Minister Anton Siluanov broke up overnight without even an agreement to extend an existing €2.5bn loan, according to sources familiar with the talks.

Mr Sarris said yesterday that the discussions also involved possible Russian investments in Cypriot banks and energy resources.

Interest from the Russian side in those assets, which could be secured against a fresh funding package, was also scant, one of the sources said.

Germany's finance minister said the eurozone stands ready to help bail out Cyprus, but the burden must be shared by its financial sector, otherwise the island's economy will collapse under its public debt.

Wolfgang Schaeuble told Greek newspaper Ta Nea that the perception that the Cypriot problem "can be solved only by taxpayers in the eurozone without the participation of major creditors of Cypriot banks cannot be accepted by Europe's citizens".

German Chancellor Angela Merkel said she wanted Cyprus to remain in the eurozone, but the island had yet to realise that its business model was dead, parliamentary sources said.

Speaking at a meeting of EU foreign ministers in Dublin, Tánaiste Eamon Gilmore said it is important that the rest of Europe stands in solidarity with the Cypriots.

Austrian Foreign Minister Michael Spindelegger said it is now up to the government there to put a proposal on the table.

He said the EU is not in a position to solve all of the country's problems.

Meanwhile, former Cypriot finance minister Marios Mavrides said if a bailout package was not secured by Monday, he was afraid the country would go back to printing the Cypriot pound.

Mr Mavrides said going back to the Cypriot pound would lead to deflation and a lowering of living standards.

Speaking on RTÉ's Today with Pat Kenny, he also explained how a "good bank, bad bank" regime would work.

"The good bank is going to include the deposits under €100,000 and also the good loans, the loans that are being paid and are being serviced normally.

"The bad bank is going to include the amounts of money above €100,000 and also the bad loans, the ones that are not being serviced," Mr Mavrides said.

He spoke of the public dissatisfaction in Cyprus with the eurozone.

"I think we have been betrayed in the eurozone and we have very strong feelings about it and there is a public sentiment in Cyprus against the eurozone."

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