Yesterday, when we described the latest Cyprus bailout proposal being (belatedly) debated by the Cyprus parliament and soon to be voted, we wondered how long before the Troika rejects it outright.  After all the "Solidarity Bailout" Plan C (or whatever it is) did not do what Germany more than anything wanted to accomplish - punish Russian depositors as this entire farce has been nothing but a political gambit dictated by Germany from the onset. And so while GETCO's entire army of algos awaits the flashing red headline with a touch of optimism to unleash robotic buying of ES and EURUSD, we fast forward to the inevitable denouement, which is, not surprisingly, bad news for Cyprus, because as the FT reports, confirming our initial skepticism, "European officials rejected Cyprus’ plans for an alternative package to save its banking sector and remain in the euro, starting a fresh round of talks with the island nation’s government on Friday."

Full details [6]:

 

 

The latest plan involved winding up Laiki, the island’s second-largest lender, and split it into a “good” and “bad” bank, with larger deposits over €100,000 folded into the latter. Deposits up to €100,000 would be guaranteed and bank jobs were to be safeguarded. 

 

But several of its elements – such as raising €2bn by nationalising the state pension fund and issuing bonds based on future revenues from offshore gas deposits – continued to be seen as non-starters by Brussels and Berlin.

 

“There was some discussion of going back to the original plan of a bank levy, but there are objections from the central bank,” said one person with knowledge of the talks.

 

The dismissal of the plan comes as time is running out for the island nation to agree on a plan to raise €5.8bn and avert financial collapse before the European Central Bank suspends funding on Monday.

 

There were already long lines at cash machines in Nicosia on Friday morning and one Cypriot official summed up the sense of desperation saying: “We are waiting for a messiah to come and save us, and of course, there is none”.

 

Indeed, Angela Merkel, German Chancellor, on Friday told lawmakers that the nationalisation of Cyprus’ pension funds was not acceptable.

Elsewhere, pouring gas on the non-bailout fire, was Russia which Bloomberg reported has crushed all hopes it would swoop in as an alternative white knight, and bailout Cyprus. After all why would it: the worse the situation on the ground, already blamed on Merkel and the Troika, the greater its leverage, and the more power it has to acquire any and all Cypriot assets for free if and when Cyprus is "spun off" from Europe. From Bloomberg [7]:

 

 

Russia spurned Cyprus’s offers of assets for a bailout as the island nation’s lawmakers debate legislation to avert a financial collapse.

 

“I think we are not able to get the support that we wanted to get,” Cypriot Finance Minister Michael Sarris said in an interview after checking out of the Lotte Hotel in downtown Moscow. “But we must go back home because things are getting serious.”

 

Russia has ended talks with Cyprus and will decide on participating in restructuring debt after the so-called troika overseeing euro-area bailouts, makes its decision, Finance Minister Anton Siluanov told reporters today in Moscow. The troika comprises the EU, ECB and International Monetary Fund.

Bottom line: Europe will not agree to any plan that does not promote "debt sustainability", i.e., impairment of Russian oligarch savings, which in turn is a non-started in Cyprus, and would lead to an immediate trade war with European energy supplier Russia.

That is, in a nutshell, the stalemate as we head into the weekend, and a Monday Cyprus bank holiday, during which the ECB has issued the supreme bluff, and said it would cut off all the funding to the small island.

It is certainly shaping up as a fun weekend.

http://www.zerohedge.com/print/471766