Cyprus Crisis: Parliament Wrangles over Bailout [VIDEO]

Cyprus lawmakers will decide today (Friday) on a proposal that will either secure a critical €10bn bailout from its eurozone partners or make it the first nation to formally exit the European single currency.

The nation appears to be running out of options after finance minister Michael Sarris returned from Moscow without an agreement to amend the terms of a €2.5bn bilateral loan or any new financing arrangement.

Reports from Germany have suggested that Germany's Chancellor Angela Merkel would urge the rejection of Cyprus's latest plan - which includes a raid on the nation's pension funds - if it was presented to the so-called Troika of the European Union, the European Central Bank and the International Monetary Fund this weekend.

"Today, parliament decides whether we remain in the eurozone or out," Cyprus Central Bank president Panicos Demetriades told lawmakers. "If we don't approve the bill, the country will go into default."

Parliamentarians need to create a plan that will raise around €5.8bn before the Troika will agree to release a further €10bn in rescue loans - cash that is desperately needed to shore up the nation's crippled banks which, at present, are being kept alive through the ECB's Emergency Liquidity Assistance programme. However, the ECB said it would shut the programme down early next week if lawmakers weren't able to reach a workable deal.

"The next few hours will determine the fate of the country," said government spokesperson Christos Stylanides before the debate. "We must all assume our share of the responsibility."

The country's biggest lender, the Bank of Cyprus, issued a statement urging its politicians to reconsider the week's earlier proposal from the Eurogroup (the collection of eurozone finance ministers) which suggested exempting smaller depositors from the proposed levy and charging instead a higher rate on savings accounts containing more than €100,000.

"Since it was evident that there were no alternative solutions there must be no further delay in adopting the Eurogroup's proposal," the bank said in a statement, warning that all deposits would be lost if the system collapsed. "And finally, we want to highlight that any return to the Cypriot pound means significant loss of asset value and lead to a vicious circle of devaluation and hyperinflation."

The latest plan is reported to include splitting the country's banks, protecting smaller depositors (around half of the €70bn held in Cypriot banks is thought to be in accounts containing less than €100,000) in a so-called "good bank" and allowing the failure of the residual "bad" bank.

Lawmakers are also considering so-called capital control legislation that would put limits on cash withdraws and the closing of time-deposit accounts and give far-reaching powers to the Central Bank president Demetriades to prevent capital flight.

"While repercussions will still be severe on the Cypriot economy (we expect a fall in GDP of 9 percent this year), with a loss of confidence among foreign large deposit holders and to the Cypriot financial sector, the current proposals are much better than any other alternative on the table," wrote Societe Generale economists Michala Marcussen and Anatoli Annenkov in a client note published Friday.

"In terms of contagion to other countries, the risks should be more limited, although confidence in the European leaders' abilities to tackle the crisis will not have increased."