A deadly explosion that shut down Cyprus' major power plant and spawned a week of rolling blackouts has wreaked such damage to the economy that it may need to be bailed out, the country's top banker has warned.
The government should enact more austerity measures to deal with an escalating crisis that has seen homes, businesses and government offices go without air conditioning in mid-summer, when temperatures often hit 100 degrees (37 centigrade), central bank governor Athanasios Orphanides.
"I believe that the economy is now at a state of emergency, comparable to that of 1974," Orphanides said in a July 18 letter to President Dimitris Christofias, which was obtained by The Associated Press on Wednesday.
In 1974, Cyprus was split along ethnic lines after a coup by supporters of union with Greece was followed by a Turkish invasion. The country, which took up the euro in 2008, remains divided despite years of talks.
Cyprus, which has not been dragged into Europe's debt crisis mire despite its close links with Greece, has been badly hit by the July 11 explosion of seized Iranian munitions.
The munitions _ gunpowder inside dozens of containers confiscated from an Iran chartered ship in 2009 that the U.N. said had breached a ban on Iranian arms exports _ had been stacked in an open field at the naval base.
Official documents show military officials had warned that exposure to the elements could have made the gunpowder unstable. The power plant was just a few hundred yards (meters) away.
As well as killing 13, the blast has prompted rolling blackouts around the country, shaken confidence in the government and spawned nightly protests demanding answers amid claims of official negligence.
"To avoid the worst, including among others entry into a support mechanism with all that that would entail for the economy as well as for the national issue, more and more drastic measures are needed immediately," Orphanides said.
Officials have said it will take months to repair the station and the electricity authority is struggling to meet demand. Greece and Israel have offered generators, while Turkish Cypriots in the breakaway north are also supplying electricity from their own grid. The plant provided over 50 percent of the country's electricity.
The government is set to unveil the first batch of measures later this week, in the wake of several credit rating downgrades over Cypriot banks' exposure to bailed-out Greece.
Orphanides, who is a member of the European Central Bank's main board, has been a strident critic of earlier austerity package proposals, insisting that they are taking too long to implement and that they haven't gone far enough in curbing public spending _ especially on cutting the government payroll which takes up about a third of the island's budget.
Economist Stelios Platis said the blast's impact could shave up to a percentage point off the island's growth forecast for 2011 of 1.5 percent. In monetary terms, that's between 180-350 million euros, which could add an additional 1 to 2 percent burden on Cyprus' budget deficit which now stands at 5.3 percent.
Platis said however, that those estimates discount the cost of repairing the power station.
Repairs could cost a few hundred million euros more, he said.