EU gives Cyprus an ultimatum over bailout

People wait to use the ATM in front of a closed branch of CPBÂ Bank (Cypriot Popular Bank). Photo: Michael Anhaeuser/DPA/Press Association Images

Politicians moved today to restructure Cyprus's most troubled bank as part of a broader bailout plan that must be in place by Monday to avoid financial ruin.

Tensions built up in the Cypriot capital of Nicosia, as concerned customers rushed to get cash from ATMs and bank employees took to the streets to protest against the government's proposals.

The Cypriot government announced earlier that it would create a so-called "Investment Solidarity Fund", in essence a state investment fund.

Cyprus' President Nicos Anastasiades (centre) chairs a meeting yesterday. Credit: Reuters

The proposal was created as a response to European Central Bank calls that it would cut off 10 billion euros worth of emergency support to the banks, in an event it did not find a way to raise 5.8 billion euros (£4.9 billion).

It would throw the country into financial chaos and, ultimately cause it to leave the eurozone, with unpredictable consequences for the region.

The fund is thought to bundle state assets such as natural gas revenues, church property and social security fund reserves, as the basis for an emergency bond issue in an effort to help raise the money it must contribute to a plan to shore up.

ITV News ' Europe Editor James Mates reports:

Party leaders and the government were hashing out three new laws tonight, ranging from restricting bank transactions to restructuring the most troubled bank, Cyprus Popular Bank, or Laiki.

Cyprus Central Bank governor Panicos Demetriades announced that there would be restrictions on ATM withdrawals of 260 euros (£221) per customer daily from Cyprus' Popular Bank, causing queues of 40 to 50 people to form outside the ATMs today.

The governor added that failure to implement the measures will "render it bankrupt". A bill was also submitted to the Cypriot Parliament giving the the country's Financial Minister or the Central Bank governor the right to impose capital control on banks.

As a result, the Standard & Poor's credit rating agency lowered Cyprus's sovereign rating from CCC+ to CCC.

The vote on the 64-page document on the "solidarity fund" and controls on the country's banks will take place tomorrow at 10am.

Read: Cyprus chaos continues as banks stay closed