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Cyprus Looks for a New Debt Plan

Officials in Cyprus met throughout the day Wednesday to try to craft a new funding plan to avoid a debt default for the Mediterranean island nation.

Cypriot leaders were faced with no obvious way to raise $7.5 billion the country's international lenders are demanding before they will approve $13 billion in rescue funds. On Tuesday, the country's parliament overwhelmingly rejected a tax on bank deposits that angered savers.

The Nicosia government said the country's banks, closed all week, would remain shut until next Tuesday, to prevent a run on accounts.

Europe is pressuring Cyprus to offer new solutions to the island nation's debt crisis after parliament rejected the deposit tax plan.

The European Commission, the administrative arm of the European Union, said it was up to Cyprus to offer "an alternative scenario."

German Chancellor Angela Merkel said she respected the Cyprus vote. But she said the Mediterranean nation's banking system -- long viewed as a tax haven for wealthy offshore investors, especially Russians -- is not financially stable for the long term. She said the banks should help fund the bailout.

"So we are of the opinion that the banking sector needs to make a contribution toward managing Cypriot debt and so we will continue negotiations, primarily via the (the group of international lenders). We will look at any proposals Cyprus makes with respect. Germany wants a solution. Cyprus is a partner in the eurozone and therefore we are obliged to find a solution together.''

Cyprus pleaded for a new loan from Russia, but there was no immediate agreement.

Archbishop Chrysostomos said the Orthodox church is willing to mortgage its assets in Cyprus and invest in government bonds. He made the comment after a meeting with President Nicos Anastasiades.

The parliamentary vote left the fate of the bailout in question and raised the possibility that the Cypriot government could default on its financial obligations or even end its membership in the 17-nation euro currency union.

If it eventually secures a bailout, Cyprus is planning on using much of the money to refund its beleaguered banks that have been weighed down with losses on Greek government bonds that were reduced in value to help resolve the Athens debt crisis.

The original Cyprus debt terms were set by the International Monetary Fund, the European Central Bank and the country's eurozone neighbors. It called for the tiny country to impose what the lenders said was a one-time tax on bank deposits, nearly 10 percent on the largest accounts above $130,000.

The proposal drew the immediate ire of Cypriot depositors, as well as Russian President Vladimir Putin. Wealthy Russians have vast sums parked in Cypriot accounts.

The Cypriot economy accounts for only a very small fraction of the eurozone's economic fortunes, but none of the previous bailouts for Greece, Portugal, Ireland and the Spanish banking system taxed savings. Some analysts said they feared that taxing deposits in Cyprus could set a precedent that might be followed in other debt-ridden countries in the currency bloc and ignite a run on banks to withdraw money.

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