Cyprus: no figure yet on size of EU bailout sought

AP News
Posted: Jun 26, 2012 4:01 PM
Cyprus: no figure yet on size of EU bailout sought

NICOSIA, Cyprus (AP) — Cyprus has yet to figure out how much European Union bailout money it will ask for to prop up its Greece-exposed banking sector and ailing economy, the eurozone country's finance minister said Tuesday.

Vassos Shiarly dismissed as "speculation" reports that Cyprus will require as much as €10 billion ($12.5 billion) because negotiations with the EU have yet to begin. "Neither ourselves nor the people we're talking to have ever raised the question of the amount. This is a matter which will be determined during the process that we follow," Shiarly said after a briefing of political leaders on the decision to seek help from the EU bailout fund.

Cyprus on Monday became the fifth country to request financial aid from the troubled European currency, just days before a June 30th deadline to recapitalize Cyprus Popular Bank, the island's second largest lender which suffered the heaviest losses as a result of its exposure to Greek debt.

The bank needs €1.8 billion ($2.25 billion) to meet EU-set capital buffer, but has been unable to raise the money privately. The government has pledged to cover the amount, but is itself strapped for cash because it can't borrow from international markets as a result of prohibitively high interest rates brought on by its junk credit rating status.

Cyprus, with a population of less than a million, has managed to get by this year, thanks to a €2.5 billion ($3.12 billion) loan from its close ally Russia. But that money will run out by the end of the year, and Cypriot officials have said that the government is in talks with both Russia and China for a similar loan.

Cyprus government spokesman Stefanos Stefanou said a key factor in determining how much EU bailout money Cyprus will need is whether the island can secure an additional loan from another country.

Cyprus also sees a third-country loan as strengthening its bargaining hand with EU officials to stave off the kind of harsh austerity measures that bailed-out countries such as Greece, Portugal and Ireland have had to enact in exchange for the bailout cash.

Cyprus hopes to protect its low, 10 percent corporate tax rate which brings in plenty of foreign business supporting the country's €18 billion ($22.5 billion), services-oriented economy.

"We're very sensitive about the matter because it's very important to the Cypriot economy," Stefanou said.

He said the government can steer clear of harsh austerity measures by pointing to its relatively low fiscal deficit now hovering at 3.4 percent of gross domestic product and debt of around 71 percent of GDP, significantly lower than the European average.

"We know what we'll tell our European partners. We know what we'll show as evidence of our effort to reform the economy," said Stefanou, adding that a fresh package of spending cuts and tax hikes to be unveiled soon will bring the deficit down to a promised 2.5 percent of GDP.