A top European official will chair a high-level meeting on Cyprus on Sunday afternoon in a last-ditch effort to seal a deal before finance ministers decide whether the country gets a 10 billion euro bailout loan to save it from bankruptcy.
Cypriot President Nicos Anastasiades and Finance Minister Michalis Sarris were flying to Brussels early Sunday. The day of talks could prove critical — not only for the future of their small island nation, but for that of the 17-nation eurozone, as well.
"No one really knows what their fate is going to be here," said CBC News' Neil Macdonald from Limassol, Cyprus on Sunday.
Spokesman Preben Aamann could not confirm who would participate in the meeting, but said it would be led by European Council President Herman Van Rompuy. The Council is the gathering of 27 EU heads of state and government.
Cyprus said European Council President Jose Manuel Barroso would also participate in the meeting led by Van Rompuy. The Council is the EU's executive arm.
Following that session, Anastasiades will meet with Christine Lagarde, the managing director of the International Monetary Fund, and Mario Draghi, president of the European Central Bank, Christodoulides said.
Cyprus has been told it must raise €5.8 billion in order to secure the loan from the IMF and other eurozone countries. The IMF, European Central Bank and European Commission will determine whether any plan put forward by Cyprus — or negotiated in the Van Rompuy meeting — meets that requirement.
The requirement is that Cyprus' debt, including any new bailout loan, be sustainable over the long run, considering the size of the country's economy.
"I've never seen a people trusting their government so much as I've seen it here," said Macdonald.
'People are fearful'
To avoid bankruptcy or the collapse of its banking system, Cyprus needs significantly more than the €10 billion the international creditors are willing to lend it. For that reason, the country must somehow raise — and not through borrowing —the additional money.
"People are fearful. They're not happy. They can't get money out of the bank, except a little here and there from the ATM's," said Macdonald.
"They seem to believe that one way or the other — either their elected officials, who are utterly powerless in reality, or the Europeans will come to their rescue — everything will be alright."
Tax plan shot down in vote
The original plan, agreed to in marathon negotiations, called for a one-time "levy" on all bank depositors in Cypriot banks. The proposal ignited fierce anger among Cypriots and failed to garner a single vote in the Cypriot Parliament.
"The people are very happy that their parliament voted down this plan. They're very proud of their government stood up to Europe," said Macdonald.
Any new proposal would have to be approved Sunday evening by the Eurogrop, the gathering of finance ministers from the 17 EU countries that use the euro currency.
"The integrity of the euro is at stake," said Macdonald. "There may be a knock on effect and they may not be able to contain the contagion and build a fence around Cyprus."
If Cyprus or its banks were to collapse, officials fear that a lack of confidence could spread to other countries that use the euro, triggering higher borrowing costs or capital flight from those countries.
"Right now I'm standing on the seaside and people are sitting and drinking coffee. There's very few protests. It's remarkable the amount of calm given the amount of fear that there is," said Macdonald.
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