The European Union gave Cyprus till Monday to raise the billions of euros it needs to secure an international bailout or face a collapse of its financial system that could push it out of the euro currency zone.
In a sign it was at least preparing for the worst, the Cypriot government sought powers on Thursday to impose capital controls to stem a flood of funds leaving the island if there is no deal before banks reopen following this week's shutdown.
Parliament will reconvene later on Friday to debate a raft of government crisis measures after lawmakers adjourned a late-Thursday sitting saying they needed more time for consultation.
Even those measures looked likely to fall short of a promised "Plan B" to raise the 5.8 billion euros demanded by the EU in return for a 10 billion euro lifeline from the EU and IMF.
The European Central Bank said it would cut off liquidity to Cypriot banks without a deal, and a senior EU official told Reuters the bloc was ready to see the island banished from the euro to contain damage to the wider European economy.
Angry Cypriot lawmakers on Tuesday threw out a tax on deposits, calling the EU-backed proposal "bank robbery".
After more talks on Thursday, the currency union's finance ministers urged Cyprus to table a new proposal.
Trying to placate its lenders, the government proposed to parliament a "solidarity fund" that would bundle state assets, including future gas revenues, as the basis for an emergency bond issue, likened by JP Morgan to "a national fire sale".
It also sought the power to impose capital controls on banks, a type of measure unseen since before the country joined the single currency bloc five years ago.
ECB Patience Flags
The European Central Bank, which has kept Cyprus's banks operating with a liquidity lifeline, said the government had until Monday to get a deal in place, or funds would be cut off.
"Thereafter, Emergency Liquidity Assistance (ELA) could only be considered if an EU/IMF program is in place that would ensure the solvency of the concerned banks," the ECB said.
(Read More: EU 'Blackmailed' Cyprus: Ex-Cypriot Central Banker)
In Brussels, a senior European Union official told Reuters that an ECB withdrawal would mean Cyprus's biggest banks being wound up, wiping out the large deposits it has sought to protect, and probably forcing the country to abandon the euro.
"If the financial sector collapses, then they simply have to face a very significant devaluation, and faced with that situation, they would have no other way but to start having their own currency," the EU official said.