FT: Cyprus requests eurozone bailout

http://www.ft.com/cms/s/0/80320e0e-bed0-11e1-b24b-00144feabdc0.html#axzz1yjsdAHkV

Cyprus has become the fifth eurozone country to seek an international bailout amid mounting economic problems and fresh challenges for its banks after a credit-rating agency downgrade.

Bowing to eurozone pressure, the cash-strapped government of President Demetris Christofias said it had asked for help, just days before a deadline to recapitalise one of the country’s largest banks.

“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,” the government said in a statement on Monday.

Jean-Claude Juncker, the Luxembourg prime minister, who heads the group of eurozone finance ministers, later responded by saying: “I welcome the formal application for financial assistance that I have received today from the Cypriot authorities. The Eurogroup will now swiftly examine the request and will provide a formal response to Cyprus.”

Cyprus has been locked out of capital markets for more than a year and had been seeking further help from Russia, which has already lent the island €2.5bn. The close relationship between Moscow and Nicosia, which takes over the EU’s rotating presidency on July 1, has prompted some concern elsewhere in the EU.

Britain had considered making a bilateral loan to Cyprus because of its close ties to Cyprus and in view of the strategically important British military base on the island, but decided against it.
Some Cypriot economists say the country could need as much as €10bn to cover the banking sector’s exposure to Greek private sector debt and other needs as well as the capitalisation requirements of Cyprus Popular Bank, the country’s second biggest lender. The government has more than €2bn in debt coming due next year.

“This is long overdue,” said Stelios Platis, a prominent Cypriot economist. “The delay going to the EFSF [European Financial Stability Facility – the eurozone rescue fund] was damaging for Cyprus and the banking sector ... We have to contain the spillover effect from Greece.”

Fitch’s decision to cut Cyprus’s sovereign rating to “junk” status on Monday meant the country lost its investment grade status with all three of the largest rating agencies, highlighting the narrowing options for Mr Christofias’ government.

Eurozone officials have made clear that a Cypriot request for assistance would almost certainly have to mean the Christofias government agreeing to a wide-ranging package of reforms for the economy.

Σχόλιο: 'Ηταν θέμα χρόνου. Και το contagion της ελληνικής κρίσης συνεχίζεται...