"Cyprus up the creek without a paddle": Troika Rejects Plan B in Cyprus To Tap Pension Funds

Cyprus is a small island with less than a million people, but the tensions created this week over conditions for a bailout package for Cyprus have brought renewed urgency to the euro crisis.

Nearly one week after the European Union agreed to a €10 billion rescue for the country, the Cypriot parliament still hasn't approved any compromise deal. On Friday, the troika also appeared to have rejected an alternative proposed by Nicosia.

Under the original plan, Cyprus' partners had demanded that a one-time levy be applied to bank accounts in the country, requiring all depositors to participate in the bailout. The move proved enormously controversial across Europe and it was rejected in Nicosia.

Under the so-called "Plan B," Cyprus would abandon the controversial bank levy and instead attempt to raise its €5.8 billion share of the bailout through a fund based on a portfolio of government assets. It is this plan that has reportedly been rejected by the troika, comprised of the European Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF).

Cyprus' receipt of a €10 billion emergency loan from the European Stability Mechanism, the euro-zone bailout fund, has been made contingent on Nicosia coming up with almost €6 billion on its own. The fund it designed to do so would include money from the Orthodox Church, pension funds and other institutions that would back government bonds that would then be issued. The Cypriot central bank is also expected to contribute to the fund with its gold reserves.

Early Friday afternoon, Greek TV station Skai-TV and the newspaper Ta Nea reported that the troika has rejected the proposal following a meeting with Cypriot President Nicos Anastasiades. Troika officials reportedly told the leader it was unlikely the country could raise the funding shortfull with the plan. They are reportedly sticking to their demand that Cyprus impose a deposit tax, but only on accounts holding sums of €100,000 or more.

Angela Merkel's party group in parliament on Friday said the German leader has warned that Cyprus' partners may soon lose patience and that the country should not try to test the troika. She also criticized leaders in Nicosia for not having communicated with troika officials in recent days. 

For her part, Merkel opposes any plan that would tap Cypriot pension funds in order to fix the country's banking problems. Participants in the meeting quoted Merkel as saying that EU social principles could not be abandoned. She also reportedly stated that Cyprus appears not to have recognized that the business model it has used up until now has ended. 

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