Cyprus becomes fifth eurozone country to seek EU aid
CYPRUS became the fifth eurozone country to seek financial assistance from the EU's rescue funds, announcing yesterday that it was applying for a bailout for its banking sector hit by exposure to the crisis in Greece.
Tiny Cyprus needs to raise at least €1.8bn -- equivalent to about 10pc of its domestic output -- by Friday to satisfy European regulators about the health of Cyprus Popular Bank. It may seek more. Cyprus did not say yesterday how much money it wants.
The country, which takes over the European Union's rotating presidency on July 1, follows Greece, Ireland, Portugal and Spain in seeking help to return to financial health.
The third-smallest euro economy has been hurt by losses from Greece's recession and debt restructuring.
Like Ireland, Cyprus is relatively small but has a large financial services sector and low corporation tax. The communist government had hoped to get aid from outside Europe to protect the 10pc tax rate but now appears to be have bowed to the inevitable.
Even a mooted €10bn bailout would still be much smaller than Ireland's bailout when measured per head of the population.
"The purpose of the required assistance is to contain the risks to the Cypriot economy, notably those arising from the negative spillover effects through its financial sector, due to its large exposure in the Greek economy," a government announcement said.
With its coffers emptying rapidly and hurtling towards an immovable deadline, the island suffered a further fiscal sovereign credit rating cut to non-investment, or junk, status by Fitch at BB+.
European authorities have pressed Cyprus to take a full bailout package worth as much as €10bn, resisting the country's attempt to limit any aid to its banking system, two officials said earlier this month.
The government needs as much as €6bn over two years for the banks.
With a bailout widely viewed as all but inevitable, Cyprus has for weeks been trying to juggle its options between a bailout from Europe's rescue funds, the temporary EFSF and the permanent ESM, or a bilateral loan from either Russia or China.
Cypriot President Demetris Christofias was scheduled to brief political leaders today, a statement from the presidency said yesterday.
Mr Christofias, the EU's only communist leader, has been reluctant to accept the fiscal and regulatory conditions that might be attached to a European rescue. Weekend trips by government officials to China suggested Cyprus was still holding out hope for a bilateral loan from a third country.
Commerce, Industry and Tourism Minister Neoklis Sylikiotis confirmed discussions in China were focused on a loan or a Chinese investment in the troubled Cyprus Popular Bank.
Officials say any aid via the EFSF would likely be restricted to the banking sector. (Additional reporting Reuters and Bloomberg)