MPs in Cyprus are due to begin voting on a series of bills that aim to raise the funds the country needs to secure an international bailout.
The country is in a race against time after the European Central Bank gave Cyprus until Monday to find the money.
If it does not, liquidity to the country’s banks could be cut off and they could collapse.
Finance Minister Michael Sarris has reportedly left Moscow after failed talks to secure economic aid.
Mr Sarris sought and failed to obtain a loan of about 5bn euros (£4.3bn; $6.5bn) in return for energy and other assets, according to a report by Bloomberg news agency. Cyprus needs to find 5.8bn euros to qualify for a 10bn-euro bailout loan from the EU and International Monetary Fund (IMF). Parliamentarians flatly rejected a plan to tax bank deposits earlier this week.
European Commission chief Jose Manuel Barroso, who was also in Moscow this week, said he was “very concerned” at recent developments in Cyprus but added: “We have in the past solved bigger problems.”
“I hope that this time a solution can also be found.”
Many Cypriots fear they will lose their savings, and there have been long queues at cash machines.
“The next move may prove its salvation or destruction,” warned the Bank of Cyprus, the country’s largest, which itself said to require urgent funding to prevent collapse.
MPs could be seen arriving at parliament in the capital, Nicosia, passing protesters.
Eurozone finance ministers have said they are “ready to discuss with the Cypriot authorities a draft new proposal”, which they expect “the Cyprus authorities to present as rapidly as possible”.
Political leaders discussed the options with President Nicos Anastasiades on Thursday, and the package was then discussed by the cabinet. But MPs said they needed more time to study the nine bills that make up the draft legislation. If no “Plan B” can be found by Monday, the ECB may cut off funding to the island’s banks, it said in a statement triggering their collapse and possibly the country’s exit from the euro.
Both Bank of Cyprus and another big bank, Laiki, are believed to be reliant on the ECB’s Emergency Liquidity Assistance, provided via the Central Bank of Cyprus.
All Cypriot banks have been shut until next Tuesday to prevent mass withdrawals, but long lines have been forming at cash machines.
They are still dispensing cash but, with such demand, are frequently running out, and on Thursday Laiki radically lowered the daily withdrawal limit to 260 euros.
“There are rumours that Laiki Bank will never open again. I want to take out as much as I can,” retired government official Phaedon Vassiliades told AFP news agency as he withdrew cash at a machine in the capital, Nicosia.
A key component of “Plan B” is the establishment of a state “investment solidarity fund” which would issue bonds on state assets to raise the 5.8bn euros required.
Other elements could include restructuring other Cypriot banks, use of pension fund, and accepting an offer of help from Cyprus’ wealthy Orthodox Church. A revised levy on deposits also remains a possibility.
Big Russian investors are believed to hold about a third of all Cypriot deposits – and reacted with fury when the initial plan to tax deposits by up to 9.9%.
‘Absurd’
Russian Prime Minister Dmitry Medvedev attacked the original bailout proposal for a levy as “absolutely absurd”.
“I think that the Eurogroup [the group of eurozone finance ministers] ought to look at further plans for a settlement around Cyprus with the involvement of all interested parties, including Russian structures,” he said, speaking after talks with Mr Barroso in Moscow.
Eurogroup chairman Jeroen Dijsselbloem told the European Parliament he doubted a “Plan B” was really possible – and he partially defended the original idea of a levy on deposits, saying “alternatives would have made Cyprus’ debt unsustainable”.
Any revenue from gas discoveries off Cyprus remains years off and Turkey may challenge its exploitation.
The banking sector dominates the economy and if a viable rescue is not organised soon the island state risks having to abandon the euro.
Cypriot banks were among the bondholders who had to take a big “haircut” in the second massive bailout for Greece.
Since 2008 the eurozone has been badly bruised by the massive bailouts provided for Greece, the Republic of Ireland and Portugal. There is a widespread reluctance to commit more EU taxpayers’ money to ailing banks in southern Europe.
