NICOSIA, CYPRUS — Cyprus is expected to make a dramatic U-turn Saturday to avert the imminent threat of a financial meltdown, having signaled that it is willing to tax big savers in its stricken banks to clinch a bailout from the European Union.
The island’s partners in the 17-nation euro zone scheduled a meeting for Sunday in Brussels, in a strong sign that they believe a solution is near.
As hundreds of demonstrators faced off with riot police outside parliament late into Friday, lawmakers inside voted to nationalize pension funds, pool state assets for a bond issue and peel good assets from bad in stricken banks.
Officials said a deal was imminent to raise $7.5 billion demanded by the E.U. in return for a $13 billion lifeline, including some kind of levy on bank deposits, which could be voted on as soon as Saturday.
Without a deal by Monday, the European Central Bank has threatened to cut off cash for Cypriot banks, spelling certain collapse and possible ejection from the euro zone.
Cyprus moved perilously close to bankruptcy when its parliament threw out the proposed levy on Tuesday, with Cypriots enraged by plans to hit small holdings of ordinary savers as well as large accounts, many held by foreign investors.
In the absence of the bank levy, Nicosia turned to Russia, whose citizens have billions of euros at stake in Cyprus’s outsize banking sector. But Finance Minister Michael Sarris returned from Moscow empty-handed. On Friday he said the bank levy was back “on the table.”
Party officials said discussions were centered on a levy on depositors holding more than 100,000 euros ($130,000), sparing smaller savers. One official said the tax could be limited to big savers at the island’s biggest lender, Bank of Cyprus, at a 20 percent rate.
Lawmakers adopted a bill that would pave the way for the government to split its failing lenders into good and bad banks. The measure is likely to target Bank of Cyprus and No. 2 lender Cyprus Popular Bank, also known as Laiki, and would make it easier for the government to safeguard deposits that enjoy a state guarantee of up to 100,000 euros.
In Finland, an ally of Germany in disciplining euro-zone partners, European affairs minister Alexander Stubb said he was confident that Cyprus would accept E.U. rescue terms “because there are no other options.”
The pace of the unfolding drama has stunned Cypriots, who barely a month ago elected conservative President Nicos Anastasiades on a mandate to secure a bailout.
But lawmakers balked at hitting small savers with the bank levy, a rejection of the kind of strict austerity signed up to by Portugal, Ireland, Greece, Spain and Italy over the past three years of Europe’s debt crisis.
Germany warned Cyprus that it was “playing with fire.” Moody’s downgraded its credit rating on deposits in Cypriot banks to Caa3, just two rungs from the bottom on its 11-grade scale of junk debt.
The E.U. says the only way to find the $7.5 billion that Cyprus needs to contribute to the bailout of its banks is from the depositors who put money in them.
The tottering banks hold $88 billion in deposits, including $49 billion in accounts of more than 100,000 euros — enormous sums for an island of 1.1 million people. Much of the banks’ capital was wiped out by investments in Greece.
Many of the biggest depositors are foreigners, including rich Russians, and European politicians are loathe to spend taxpayers’ money on a bailout if the depositors take no losses.
With banks in Cyprus closed until Tuesday, Cypriots have been besieging bank cash machines all week. Faced with an almost certain run on banks when they reopen, parliament also gave the government the power to impose capital controls.
“Our so-called friends and partners sold us out,” said protester Marios Panayides, 65. “They have completely abandoned us on the edge of an abyss.”
Retailers, facing cash-on-delivery demands from suppliers, warned that stocks were running low.
“At the moment, supplies will last another two or three days,” said Adamos Hadijadamou, head of the Cyprus Association of Supermarkets. “We’ll have a problem if this is not resolved by next week.”