Cypriot President Nicos Anastasiades held talks with the troika in Nicosia on Friday morning as it looked like his government might have to abandon plans to create an investment fund to prevent the collapse of its banking system.
Cypriot political parties proposed on Thursday the creation of a solidarity fund to be securitized with social security fund reserves, state assets, Church property and expected natural gas revenues.
However, it appeared on Friday that this plan was to be rejected by the troika. German Chancellor Angela Merkel told lawmakers in Berlin on Friday morning that she was against the idea of using pension money for the fund.
The talks came as hundreds of protesters gathered outside Cypriot Parliament. There were reports that staff at Cyprus Popular Bank (Laiki) were demanding that the government return to the original plan to tax deposits on the island.
At the beginning of the week, Cypriot lawmakers rejected a plan, agreed with the Eurogroup, to tax deposits above 100,000 euros at 9.9 percent and those between 20,000 and 100,000 euros at 6.75 percent.
There was increasing speculation on Friday that Nicosia might have to return to a deposit tax to secure a 10-billion-euro bailout with the troika, which would avert the collapse of its banking system.
The European Central Bank said on Thursday that it would stop providing liquidity to insolvent Cypriot banks on Monday if no agreement with the troika is in place.
Another key bill submitted to Parliament on Thursday also contained the plan for placing Laiki in resolution. It foresees the lender’s nonperforming loans being transferred to a “bad bank” and deposits under 100,000 euros, which are guaranteed, being placed in a “good bank.” Uninsured deposits would be placed in the bad bank.
The deputy leader of President Nicos Anastasiades’s conservative DISY party, Averof Neophytou, said that the winding down of Laiki would save Cyprus 2.3 billion euros, leaving it to find another 3.5 billion from other sources in order to reach an agreement with the troika for a 10-billion-euro bailout.
He added that 361,000 out of 379,000 accounts in the bank contain less than 100,000 euros. He also said 8,000 jobs at the lender would be saved.
The Cypriot government is expected to make a statement at around noon on Friday to clarify its plans.