Cyprus's finance minister on Wednesday implicitly rejected a suggestion by its central bank chief that a levy be imposed on earnings from bank deposits, saying such a move might hurt confidence in the banking system.

"The cornerstone of confidence in the banking system is the integrity of deposits, so with that in mind, one has to look at whether it could have a negative impact,» Finance Minister Michael Sarris told reporters.

Central bank governor Panicos Demetriades said in an interview with the Wall Street Journal published on Tuesday that Cyprus could install a special levy on capital gains from bank deposits to finance the restructuring of its banking sector.

Sarris, one of the first ministers appointed by Cyprus's conservative President Nicos Anastasiades after winning power in a February 24 election, said he had not had the opportunity to discuss the matter with Demetriades.

With its coffers virtually empty, Cyprus's application for up to 17 billion euros in aid from international lenders has been complicated by worries about whether the Mediterranean island nation could ever afford to pay off such loans.

Officials from the «troika» of the European Commission, the European Central Bank and the International Monetary Fund, resumed contacts in Nicosia on Wednesday, a finance ministry source said.

Ideas for making Cyprus's debt sustainable have ranged from privatisations and securitising potential natural gas reserves to more extreme scenarios - ruled out by Nicosia - of depositors in Cypriot banks paying for the cost of the rescue.

Demetriades, who is a member of the Governing Council of the European Central Bank, was quoted as suggesting a «special solidarity levy» for Cyprus would only be applied for three years and could generate as much as 150 million euros a year.

[Reuters]