Cyprus has only hard choices left, says EU's Olli Rehn

media captionOlli Rehn: "The European Commission is working hard to facilitate a solution to help Cyprus"

Cyprus has only "hard choices left" and must agree terms on Sunday for a crucial bailout for its ailing banks, the EU's commissioner for economic affairs Olli Rehn says.

Mr Rehn said there were no longer any "optimal solutions" and that Cyprus's near future "will be very difficult".

Talks with the EU and IMF continued throughout Saturday in Nicosia.

Cyprus needs their approval in order to present a rescue plan to eurozone ministers in Brussels later on Sunday.

The eurozone is offering a 10bn-euro (£8.5bn; $13bn) loan but insisting that Cyprus raise 5.8bn euros before Monday to secure it.

A previous agreement that included a levy on deposits in Cypriot banks was rejected by the country's parliament last Tuesday.

If a deal on an alternative agreement fails, the European Central Bank (ECB) says it will cut off funds to the banks, meaning they would collapse, possibly pushing the country out of the eurozone.

Cypriot leaders are struggling to agree how to raise the money but the BBC's economics correspondent Andrew Walker in Brussels says they appear to be moving towards some sort of contribution from banks' customers.

Exactly what form that will take is still undecided, he adds.

On Saturday Cypriot Finance Minister Michael Sarris was quoted as saying that Cyprus was considering a 25% levy on deposits of more than 100,000 euros (£85,000) in its biggest bank.

He said talks with EU and IMF officials had made "significant progress".

Mr Rehn said the European Commission was working hard to bring about a solution.

"It is essential that an agreement is reached by the eurogroup on Sunday evening in Brussels on a financial assistance programme for Cyprus," he said.

"This agreement then needs to be swiftly implemented by Cyprus and its eurozone partners. Unfortunately the events of recent days have led to a situation where there are no longer any optimal solutions available. Today there are only hard choices left."

He said that support from Europe could help to protect the most vulnerable people in Cyprus from the effects of the financial crisis.

"It is clear that the near future for Cyprus will be very difficult," he said.

"But Cyprus and the Cypriot people are a part of the European family. The European Union stands by them and will help to rebuild the Cypriot economy."

Banks in Cyprus have been closed since Monday and many businesses are only taking payment in cash.

On Saturday afternoon more than 1,000 bank employees marched to the Cypriot finance ministry, stopping briefly at the presidential palace.

Marchers held placards with slogans such as "No to the bankruptcy of Cyprus" and chanted "United we cannot be defeated".

Last Tuesday, Cyprus's parliament overwhelmingly rejected a levy that would have made small savers pay 6.75%, while larger investors would have paid 9.9%.

The proposal had provoked widespread anger among both ordinary savers and large-scale foreign investors, many of them Russian.