Germany warns Cyprus its banks may NEVER reopen as Russia 'offers to write off debt if Gazprom gets access to untapped oil fields'

Cypriot parliament overwhelmingly rejected an international bailout deal



Banks have been shut until Thursday to prevent mass withdrawals

Finance Minister Michalis Sarris is in Moscow to seek help from Russia

Possible options: Bank restructuring, a bond issue and Russian funding



Germany: Cypriot banks are 'insolvent if there are no emergency funds'

Merkel: Up to Cypriot government to come up with an alternative proposal



Germany has warned Cyprus that its crisis-stricken banks may never reopen if the country rejects the terms of a bailout.



Wolfgang Schaeuble, Germany's finance minister whose country is Europe's main paymaster, said major Cypriot banks were 'insolvent if there are no emergency funds'.

Russian energy giant Gazprom has offered Cyprus a plan in which the company will undertake the restructuring of the country’s banks in exchange for exploration rights for natural gas on the island.

Scroll down for video



Determined: German Chancellor Angela Merkel, whose country is Europe's main paymaster, said it was up to the Cypriot government to come up with an alternative proposal

Michael Sarris, left, said that he hoped to secure a loan agreement with Russia. President Vladimir Putin, right, called the decision not to consult Moscow over the proposed levy as ‘unfair, unprofessional and dangerous'



Germany's warning came after Cyprus's parliament overwhelmingly rejected a proposed levy on bank deposits as a condition for a European bailout of 10 billion euros (£8.6bn) last night.

German Chancellor Angela Merkel said it was up to the Cypriot government to come up with an alternative proposal but it was fair to expect savers with deposits over 100,000 euros (£86,000) to contribute to the bailout.

Moscow is now a massive ally for Cyprus - Cypriot Finance Minister Michael Sarris said he had not reached a deal at a first meeting today with his Russian counterpart Anton Siluanov, but talks there would continue.



Church talks: Cypriot President Nicos Anastasiades (right) talks with Orthodox Archbishop Chrysostomos today. 'The entire wealth of the Church is at the disposal of the country,' said Mr Chrysostomos



Russia's finance ministry said Nicosia had sought a further 5 billion euros, on top of a five-year extension and lower interest on an existing 2.5 billion euro loan. Moscow was angered that the European Union did not consult it over the proposed levy. President Vladimir Putin called the decision to seize money from savers’ bank accounts as ‘unfair, unprofessional and dangerous’. Representatives of the Russian energy giant submitted the proposal to the office of Cypriot President Nicos Anastasiades on Sunday evening. It is also rumoured that the Kremlin is privately offering to help bail out Cyprus in exchange for the right to use a naval base in the Greek part of the island.

Moscow has already handed over £2billion to prop up the economy of Cyprus and is now in talks to restructure the assistance programme. Anger: A protestor in front of the parliament building in Nicosia yesterday holds a sign mocking German Chancellor Angela Merkel after the government of Cyprus rejected an EU plan to take £5.8billion out of savers¿ accounts to pay for a bail-out of the banks

Demonstration: Anti-bailout protesters raise their open palms showing the word "No" after Cyprus's parliament rejected a proposed levy

Tense times: The parliament in Cyprus Tuesday rejected the proposed tax on bank deposits, with 36 of 56 deputies voting against the measure while 19 abstained

Russia currently has the use of only one foreign base at Tartus in Syria and docked warships in the Cypriot port of Limassol last year.



Up to £30billion of Russian money is stashed on the island, in what financial services insiders claim is a massive money-laundering operation for oligarchs and plutocrats attracted by its low tax rates.

Cyprus Energy Minister George Lakkotrypis was also in Moscow, officially for a tourism exhibition, but fuelling talk that access to untapped offshore gas reserves could be on the table as part of a deal for Russian aid.



'We had a very honest discussion, we've underscored how difficult the situation is,' Sarris told reporters after talks with Siluanov.'

We'll now continue our discussion to find the solution by which we hope we will be getting some support.



'There were no offers, nothing concrete,' he said.



Cyprus ranks as the largest source of foreign direct investment into Russia – money that is largely Russian in origin and passes through Cypriot banks before being sent back to Russia..

A branch of a Russian bank in the Mediterranean city of in Limassol. Up to £30billion of Russian money is stashed on the island, in what financial services insiders claim is a massive money-laundering operation for oligarchs

Representatives of the Russian company submitted the proposal to the office of Cypriot President Nicos Anastasiades on Sunday evening.

THE GREAT EU BANK ROBBERY CRISIS

What is going on? The government in Cyprus had been told to take €5.8bn (£4.9bn) directly from savers’ bank accounts if it wanted a €10bn (£8.6bn) bailout.

This would have hit the country’s 1.1 million inhabitants, and up to 60,000 British expats who have Cypriot bank accounts Last night, this plan was rejected by the Cypriot Parliament.

It would have meant those with between €20,000 (£17,200) and €100,000 (£86,000) would have had to hand over 6.75 per cent of their cash. Anyone with more than €100,000 would pay 9.9 per cent.

So, is the crisis over? Not by a long shot. There is no bailout under the current deal and the Cyprus economy remains in a perilous state. This may only be a small country, but its fortunes could affect the rest of the EU, and, eventually, our own economy.

The latest options on the table seem to be that either the EU stumps up the cash with no strenuous conditions on ordinary savers, or Cyprus will have to find a way to get itself out of this crisis. Cyprus has really called the bluff of EU finance ministers. The last thing they want is for a member state to go to the wall. Without a deal, it could plunge Cyprus into a debt spiral and there could be a run on the banks, sending some over the edge.



With Sarris in Moscow, there was mounting speculation that Russia might seek to exploit the crisis, having reacted angrily to the proposed bank levy.



Some reports suggested Russian oil and gas behemoth Gazprom had mooted its own assistance plan, in exchange for exploration rights to Cyprus's offshore gas deposits.



Noble Energy reported a natural gas recovery of 5 to 8 trillion cubic feet of gas south of Cyprus in late 2011, in the island's first foray to tap offshore resources.



Russian authorities have denied the Kremlin plans to offer more money.



An important issue in negotiations has been the high level of deposits held in the island's banks by non-EU citizens and companies, notably from Russia, where Cyprus has established itself as a major provider of offshore financial services.



An influx of Russian money and influence since the collapse of the Soviet Union has led some Brussels officials to complain privately that Cyprus acts at times as a 'Trojan donkey' for Moscow inside the European Union since it joined in 2004.

Cyprus must make the next move if it wants to revive its international bailout and European institutions will not fund it forever on current terms, Austrian Finance Minister Maria Fekter said today.

'We will certainly help the Cypriots but only under conditions that make sense. Certainly neither the ESM (euro zone bailout fund) nor the ECB can allow a bottomless pit,' she told reporters, adding lenders cannot accept any measures that increase Cyprus's debt further.



Cyprus overwhelmingly rejected a proposed levy on bank deposits as a condition for a European bailout on yesterday, throwing international efforts to rescue the latest casualty of the euro zone debt crisis into disarray.



Cypriot leaders held crisis talks today to avert financial meltdown after rejecting the terms of a European Union bailout and throwing efforts to rescue the latest casualty of the euro zone debt crisis into disarray.



The rejection of an unprecedented levy on bank deposits, a condition of a 10 billion euro ($12.89 billion) EU bailout, cast the 17-nation currency bloc into uncharted waters after Greece, Portugal, Ireland, Spain and Italy all accepted biting austerity measures over the last three years to secure European aid.



President Nicos Anastasiades, barely a month in the job, gathered party leaders and the governor of the central bank at his office.

Action: Outraged Cypriots had emptied cash machines at the weekend after news broke that they would be taxed on their savings

He was also due to hold a cabinet meeting and talks with officials from the EU, European Central Bank and International Monetary Fund.



Cyprus has asked Russia for a five-year extension of an existing loan of 2.5 billion euros that matures in 2016, and a reduction in the 4.5 percent interest rate.



Anastasiades spoke with Russian President Vladimir Putin by phone on Tuesday after the island's tiny legislature threw out the proposed tax by 36 votes to 0 with 19 abstentions, to the cheers of demonstrators.

Rejected: Last night, the EU plan was rejected by the Cypriot Parliament

The stock exchange and banks remained closed.



Outraged Cypriots had emptied cash machines at the weekend after news broke that they would be taxed on their savings to raise 5.8 billion euros in exchange for the bailout, breaking a taboo in Europe's handling of the stubborn debt saga so far.



The crisis is unprecedented in the history of the east Mediterranean island of 1.1 million people, which suffered a war and ethnic split in 1974 in which a quarter of its population was internally displaced.

While Brussels has emphasised that the tax measure was a one-off for a country that accounts for just 0.2 percent of Europe's output, fears have grown that savers in other, larger European countries might be spurred to withdraw funds.



Even the Church of Cyprus offered to help.



'The entire wealth of the Church is at the disposal of the country ... so that we can stand on our own two feet and not on those of foreigners,' Archbishop Chrysostomos said after meeting Anastasiades early today.

The Church of Cyprus is a major shareholder in Cyprus's third-largest domestic lender, Hellenic Bank.

The construction site of the Limassol Marina. There are so many Russians in Limassol that it is regularly referred to as 'Limassolgrad'

Leaders of the currency union said the bailout offer still stood, provided the conditions were met.



The European Central Bank had threatened to end emergency lending assistance for teetering Cypriot banks, crippled by their exposure to the financial crisis in neighbouring Greece.



'The ball is in Cyprus's court,' Dutch Finance Minister Jeroen Dijsselbloem, who chairs the euro zone group of finance ministers, said after Tuesday's vote.



Euro zone paymaster Germany, facing an election this year and increasingly frustrated with the mounting cost of bailing out its southern partners, said Cyprus had no one to blame but itself for the gravity of the situation.



'For an aid programme we need a calculable way for Cyprus to be able to return to the financial markets. For that, Cyprus's debts are too high,' said Germany's finance minister, Wolfgang Schaeuble.



BUDGET 2013: Osborne confirms support for Brits in Cyprus. OBR European growth mark down cast shadow over wider economy



