Related: "Crisis in Cyprus shows collapse of the West" - Axis of Logic

Cyprus' finance minister is returning to Cyprus from Russia after two days of talks with officials which failed to deliver a deal to rescue Cyprus.

An EU official and a Cypriot spokesman told CNBC that Russia had accepted an extension of an existing five-year loan set to expire in 2016, but offered no further information.

Reuters reported that Russia's finance minister Anton Siluanov said talks had ended without a result, saying that Russian investors were not interested in Cyprus' offshore gas reserves. Cyprus had offered Russia the chance to develop its offshore gas reserves as part of a deal for financial aid.

"The talks have ended as far as the Russian side is concerned," Siluanov told reporters on Friday.

Cyprus faces intense pressure find a solution for an international bailout to avert a collapse of its banking sector and a possible exit from the euro zone.

The Cypriot parliament is reconvening for emergency talks on Friday after the European Union issued it with an ultimatum to raise the 5.8 billion euros ($7.4 billion) necessary for a 10 billion euro bailout package by Monday. The European Central Bank said it would cut off liquidity to Cypriot banks without a deal.

Parliament will discuss a number of alternatives to a controversial tax of bank deposits, including the creation of a "solidarity fund" of state, church and pension fund assets and the introduction of capital controls on its lenders to prevent capital flight when its banks are scheduled to re-open next Tuesday.

A banking bill is also being considered which would see the country's second-largest lender, the Laiki bank, split into "good" and "bad" assets. Rumors that the bank could be wound down prompted heated public protests in the Cypriot capital, Nicosia, on Thursday.

The Eurogroup of finance ministers released a statement on Thursday night, saying that it was ready to discuss any new proposals with Cyprus and was prepared to continue negotiations on an adjustment program with the country. It said it was ready to ensure the "stability of the euro area as a whole," the statement said.

A senior EU official was also reported as saying that the bloc was ready to see the island banished from the euro to contain damage to the wider European economy, Reuters reported.

European shares opened lower on Friday but Jane Foley, senior currency strategist at Rabobank, told CNBC that she was surprised at the relative calm in markets compared to last year when a Greek exit from the euro looked likely.

"The markets are jittery and clearly they'll stay jittery over the next couple of days. But the tone in the market isn't particularly nervous when we consider how markets were this time last year," Foley told CNBC Europe's "Squawk Box."

"That is to the detriment of all those people in Cyprus queuing up outside the banks, clearly they're in a distressed state but as long as markets aren't in that distressed a state, then there is less incentive for the EU to pander to the needs of the Cypriot people," Foley said.

She said Cyprus represented an interesting test case as to whether "the Germans" would be prepared to let Cyprus go. "There is a greater risk that they'll Cyprus go than let Greece go."

A political ally of German Chancellor Angela Merkel said on Friday that Cyprus was "playing with fire" and needed to come up with a a workable proposal for plugging a multi-billion euro financing gap urgently. Germany's finance minister, Wolfgang Schaeuble, told the German Bild newspaper that he is skeptical about about the Cypriot parliament's current proposals, saying that "cosmetic changes are not enough," the newspaper reported.

Merkel herself, meanwhile, is reported to have told members of the German parliament that she she cannot accept the nationalization of pension funds in Cyrus, Reuters cited parliamentary sources as saying.

"Cyprus could be let go if they don't come up with a robust enough package. If they come up with something half-baked, that will be rejected and they will be let go. If they come up with something that clearly cuts higher deposits and puts money back into the banks and go about bank restructuring, that may work" Bill Blain, senior fixed income broker at Mint Partners, told CNBC.

Source: CNBC