UPDATE: This proposal has been cross-posted to the comments section of FT Alphaville under the excellent post “A Cypriot Game of Chicken

If confiscation of deposits is a systemic danger, as the action in global markets has shown today, and

If €5.8 billion needs to be raised from internal Cypriot sources for the purposes of the Cypriot adjustment programme, as the Troika demands,

Then why confiscate this sum if a voluntary option is available? A truly voluntary option surely is not systemic.

The trick is to pull back from forcible confiscations and look for ways whereby depositors would want to contribute this sum.

What could possibly induce deposit holders to want to contribute €5.8 billion?

Is there an offer that no true Cypriot and no true European could refuse.

The Cypriot state could structure all its profitable, strategic and natural monopoly assets (including the future natural gas revenues togeter with telco, electricity and ports) into a new holding company, and steer it immediately towards the “IPO of the century”, by Cyprus standards at least.

This new company could then issue warrants to all Cypriot adults, giving each Cypriot the right to buy a certain number of its shares. Then the warrants could trade for a short time on the Cyprus Stock Exchange until the exercise date, with the result that all the warrants would end up in Cypriot hands willing and able to subscribe to the offering.

At that point, the warrant holders would subscribe and pay up their contribution in 48 monthly instalments – collection can be via an electricity utility bill. Any unexercised warrants can be picked up by a suitable underwriter, such as the European Investment Bank.

By including the future natural gas revenues, and by targeting the offering to Cypriots thus appealing to Cypriot patriotism and with the long term prospects in mind, the entire scheme can be designed to ultimately raise an even larger sum than the €5.8 billion plus the €2.0 billion from the already agreed-to SOE privatisations.

The monthly cash flow stream from the share subscriptions would be reliable enough to securitize and pledge to ECB for upfront funding.

The IMF and Troika can see that despite the securitisation element, the underlying cashflows represent a genuine equity contribution from internal sources which does not burden the public debt obligation in any way, meeting the IMF criterion for debt viability.

This could be passed preferably unanimously by our Parliament as an alternative to the deposit haircut levy, with a suitable speech by the President defending the sanctity and inviolability of deposits as the cornerstone of banking and finance.

If however the deposit levy does go through in the end as a result of German blackmail, perhaps Cyprus can do the above as step two, with the President pledging to use the proceeds to rebate the deposit levies, making depositors whole again as quickly as feasible.

Either way, raising the €5.8 billion in funds internally and voluntarily, and ensuring that depositors remain whole, is the best way forward both for mitigating the systemic risks, and rebuilding Cyprus’ credentials as an international financial centre.