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Cyprus

Countdown on for Cyprus after bailout ultimatum

The government of Cyprus is racing against the clock to raise billions of euros and avoid bankruptcy. Votes will be held on Friday on a series of "Plan B" bills to help save the country's financial system.

On Thursday night, the parliament adjourned and delayed until Friday a vote on setting up a so-called "national solidarity fund," that would be financed through donations from Cypriots, business people and foreign investors. The proposed fund would nationalize pension funds, with bonds issued against future natural gas revenues.

The parliament also delayed imposing capital controls to prevent a run on banks, when they re-open next week.

Cypriot politicians have until Monday to approve the "Plan B" bailout deal that would secure the much needed 5.8 billion euros ($7.5 billion) demanded by international creditors in exchange for an increased bailout package for the embattled nation. If it manages to raise the funds, it will qualify for a 10-billion euro rescue loan from the European Union, the European Central Bank, and the International Monetary Fund, known as the Troika.

Cyprus: what might happen?

If the deadline is not reached, Cyprus faces being cut off from emergency funds from the ECB.

Finance ministers apply pressure

On Thursday evening, eurozone finance ministers stated their commitment to analyze Cyprus' bailout proposal, when it has one to present.

"The Eurogroup stands ready to discuss with the Cypriot authorities a draft new proposal, which it expects the Cyprus authorities to present as rapidly as possible," the ministers said in a statement.

Because Cyprus had overwhelmingly rejected the conditions of its EU/IMF bailout deal on Tuesday, which would have taxed money in all Cypriot bank accounts, finance ministers expect the country to suggest how it wants to change the bailout but keep the same parameters.

"The Eurogroup would subsequently, on the basis of a Troika analysis that needs to be undertaken, be prepared to continue negotiations on an adjustment programme, while respecting the parameters defined earlier by the Eurogroup," said Jeroen Dijsselbloem, president of the panel of ministers.

Eurozone ministers on Thursday reaffirmed their position that a one-off levy on bank deposits should apply to savings higher than 100,000 euros.

The German finance minister Wolfgang Schläuble reportedly has deep doubts as to the proposals coming out of Cyprus. The German daily newspaper Bild reported in its Friday edition that Schläuble said "cosmetic touches alone" would not be enough, during a meeting of Germany's coalition parties on Thursday afternoon.

Deeper into junk status

The ratings agency Standard & Poor's further cut Cyprus' soverign credit rating, downgrading it to CCC from CCC+, and worsened its 2013 forecast for the country. The CCC rating is three notches above sovereign default.

The agency said it believed the "risks of a sovereign default are rising" due to the risks of "renewed deposit flight," and that those risks remained even if the country managed to adopt a plan suitable to international lenders.

But S&P dismissed speculation that the crisis may force a eurozone exit for Cyprus.

"Our baseline expectation is that Cyprus will remain a member of the European Economic and Monetary Union," it said.

jr/av (Reuters, dpa, AFP, AP)

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