Cyprus MPs pass bank laws, start bailout talks

Cyprus will also set an unwanted precedent by becoming the first eurozone country to introduce capital controls. Limits on bank withdrawals and transfers of funds will come into place when Cyprus' banks open for business on Tuesday (26 March).

The controls are an attempt to avoid a run on the country's fragile banks, whose balance sheets amount to around eight times the size of the island's economy, after a week of lockdown.

MPs also voted to create a solidarity fund to pool state assets.

After three days of talks with Russian government officials in Moscow failed to deliver a promise of new funding, Cyprus has been forced to refocus its attention on an EU bailout.

Despite MPs decisively rejecting the EU's €10 billion package on Tuesday (19 March) amid large public protests, EU leaders have refused to increase the size of the loan.

Dutch finance minister Jeroen Dijsselbloem, who chairs the Eurogroup of the 17 finance ministers who countries use the euro, warned that Cyprus would not be able to repay a bigger loan. "Anything above €10 billion would not allow them to make a restart," he said.

Deputies in the 56-member House of Representatives will reconvene on Saturday and are set to vote on a revised deposit levy expected to fund the bulk of a €7 billion contribution by Cyprus as a condition of its €10 billion bailout package.

Plans to raise €5.8 billion via a 6.75 percent hit on savings between €20,000 and €100,000 and a 9.9 percent levy on deposits over €100,000, led to Cypriot MPs rejecting the initial bailout offer by eurozone finance ministers.

However, while the proposal to be voted Saturday is set to exempt all savings below €100,000 in conformity with EU rules on deposit guarantees, it could see big deposits facing a levy of up to 15 per cent.

Finance ministers will then meet in Brussels on Sunday (24 March) with a view to reaching agreement on a rescue package. The meeting, which EU officials warn could last well into Monday morning, will also be attended by IMF boss Christine Lagarde.

For their part, European Council President Herman van Rompuy and European Commission counterpart Jose Barroso shelved next week's EU summit with Japan to focus on the Cypriot crisis.

In a statement, the EU leaders said that "the on-going efforts to find a solution for the financial situation of Cyprus require our presence in Brussels."