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Brussels - Cyprus President Nicos Anastasiades headed to Brussels on Sunday for emergency talks with the island's international creditors in a bid to avert bankruptcy in a crisis that is again threatening the stability of the wider eurozone.
The clock is ticking for the tiny country after the European Central Bank threatened to halt emergency funding if there is no deal by Monday, a day before Cyprus's banks are due to reopen after a 10-day shutdown.
Cyprus and its creditors are trying to nail a deal that will restructure the island's banks and deliver up to €6bn from bank deposits in order to resurrect an agreement for a bailout worth up to €10bn.
"Unfortunately, the events of recent days have led to a situation where there are no longer any optimal solutions available. There are only hard choices left," European Union economics head Olli Rehn warned Saturday.
He acknowledged that Cypriot leaders faced hard choices to try to limit the damage from the blow to its bloated banking sector, after a firestorm of protest over the EU plans to impose a special levy on bank customer deposits that caused global concern.
Rehn said he welcomed "progress" made towards meeting the EU-IMF demands but said it was essential that an agreement was reached on Sunday night.
"The negotiations are at a very delicate stage. The situation is very difficult and the time limits are very tight," Cypriot government spokesperson Christos Stylianides said after Anastasiades left on a special flight for Brussels.
Anastasiades meets at 13:00 GMT with ECB head Mario Draghi, IMF managing director Christine Lagarde, EU president Herman Van Rompuy, European Commission president Jose Manuel Barroso and Eurogroup chairman Jeroen Dijsselbloem, sources told AFP.
Dijsselbloem will then gather finance ministers from all 17 currency partners from 17:00 GMT for what is likely to prove yet another sleepless night in snow-covered Brussels.
The sums involved are a pittance compared to Cyprus's closest ally Greece, which needed hundreds of billions all told in the eurozone's first bailout three years ago.
But with Cypriot banks in lockdown already for 10 days and the ECB threatening to pull the rug out from under Nicosia on Monday, the fallout from the current crisis could infect other troubled economies.
"We have learnt down the years that even little problems can become intractable," said Holger Schmieding, chief economist with Germany's Berenberg Bank. "There's just no telling what can unfold in this type of situation."
German Finance Minister Wolfgang Schaeuble also warned that if Cyprus was to stay in the eurozone it had to meet the terms of the rescue package.
"The eurozone countries want to help Cyprus, but the rules must be respected, the aid must be relevant and the programme must tackle the problems at their root," he told the Welt am Sonntag.
Cypriot reports suggested officials had made progress with EU and IMF representatives, having agreed a 20% haircut on Bank of Cyprus and a 4% levy on other banks.
Private channel Mega TV said the final stumbling block might not be settled before Sunday's meetings.
A radical restructuring of the island's second largest lender Laiki (Popular Bank) will see all deposits over €100 000 put into a "bad bank" where they will be tied up for years and may never be fully recovered.
But negotiations stumbled on EU-IMF demands for a substantial levy on deposits above the same threshold in the Bank of Cyprus to avoid it facing similar restructuring. It holds more than a third of all deposits.
The haircut would take the form of a bond or share swap in a bid to get the measure through parliament, after MPs flatly rejected an earlier plan for a levy on all deposits.
Cyprus negotiators had been desperate to avoid the Bank of Cyprus being subjected to the same bitter pill imposed on Laiki.
A threat to Bank of Cyprus's pension fund sparked an angry march on parliament by bank staff on Saturday and a threat of industrial action.
The Cypriot economy is reeling from the prolonged bank closure, imposed for fear of a run by panicked depositors, which has seen many businesses accept only cash transactions.
Overnight, vandals spray-painted the front of Anastasiades' Nicosia party headquarters with slogans including "Kleftes" - Greek for "thieves" - and "Get out."
