Cyprus gets EU support for bailout

Cyprus won support from its eurozone partners last night for emergency funding to prop up its banks, crippled by their Greek debt holdings.

The Mediterranean island, whose economy accounts for just 0.2% of the eurozone, is the fifth country to be forced to seek protection from the crisis enveloping the bloc.

Heavily exposed to debt-laden Greece, Cyprus’s banks nudged the island into seeking emergency aid from its EU partners on Monday, after being shut out of international debt markets for over a year.

“We have suffered a huge loss which led to this economic predicament,” Cypriot finance minister Vassos Shiarly said.

“It is an unfortunate chapter in the economic history of Cyprus but we will overcome it.”

It is unclear how much aid Cyprus may require, but two eurozone officials put the potential bailout bill as high as €10bn — more than half of Cyprus’s gross domestic product of €17.3bn.

ECB executive board member Joerg Asmussen said yesterday that the troika of lenders would probably start work in Cyprus on Monday.

“In my view, it should be a wide-reaching programme. Structural questions should be part of the EFSF/IMF programme.”

The European Commission, the ECB, and the IMF would look at the bank sector “taking into account the need for support was primarily due to the need to recapitalise the banks”, said Mr Shiarly.

“If those needs affect the fiscal requirements they will process anything else related to that.”

Eurozone finance ministers, who approved Nicosia’s request for help along with that of Spain, said any support would come with a programme of “determined action” to ensure fiscal adjustment and structural reform.

Cyprus says its budget deficit this year is expected to fall to 2.5% from 6.3% in 2011. “We stand ready to join the efforts of our European partners to help Cyprus return to stable and sustainable economic growth and restore a solid financial sector,” IMF chief Christine Lagarde said.

Reuters