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EU tells Cyprus to get a bailout or leave

| Friday, March 22, 2013, 12:01 a.m.
An employee of Laiki Bank takes part in a protest outside the parliament in Nicosia, Cyprus, on Thursday, March 21.

BERLIN — The euro currency union, a centerpiece European policy for a generation, edged toward a rupture on Thursday when the region's central bank said it was ready to pull the plug on Cyprus.

The stark ultimatum came in a terse statement from the European Central Bank's governing board that on Monday it would cut off the flow of euros to Cyprus' financial system unless the country's leaders reach terms with the International Monetary Fund and other European nations on a bailout.

The IMF and other eurozone countries have offered to lend Cyprus around $13 billion, but expect the country to come up with $7.5 billion on its own through taxes, government spending cuts or other measures to help restart a banking system that is essentially broke. A plan to raise the money by taxing bank deposits — including tens of billions of dollars held by Russians and other foreigners — collapsed earlier this week in the Cypriot parliament.

Because Cyprus is small and its banks aren't so wired into the international system, a failure likely wouldn't trigger the kinds of global problems feared if Greece or another euro nation were to leave the currency union. Still, the uncertain fallout from a Cyprus exit fueled an intense hunt for options — from a nationwide bank restructuring that would put the largest Cypriot banks out of business, to more unusual proposals like mortgaging the property of the Orthodox Church, selling off natural gas rights, or simply asking for donations.

Those details, however, were overshadowed by the larger issues — of a developed world central bank flexing its muscle over a nation's leaders and of the possibility that the eurozone, after years of insisting otherwise, may finally have to admit that its membership is not sacrosanct.

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