Cyprus nears European bail-out

Financial Times
June 3, 2012

Cyprus is increasingly likely to seek European aid to deal with the impact of the Greek crisis on its own banking system, the country’s central bank governor has told the Financial Times.

In an interview, Panicos Demetriades acknowledged that with a deadline of the end of this month to find at least €1.8bn to recapitalise Cyprus Popular Bank, the country’s second largest lender, recourse to the European Union was becoming more probable. The country, Mr Demetriades said, was at “an important crunch time.”

Michalis Sarris, Popular Bank’s chairman, also suggested the country had little alternative. He told the FT: “It is hard to see where [the capitalisation] is coming from, if not Europe”, noting that “appetite to lend to Cyprus has dried up for many months now”.

Seeking emergency EU funds would be a bitter reversal for a country that until now has rejected European assistance, preferring instead to borrow from Russia, and which assumes the presidency of the 27-nation bloc next month.

It also highlights continuing contagion from the Greek crisis, which has hit Cyprus particularly hard because the country’s banks have lost more than €3bn in the writedown of Greek sovereign debt and have more than €22bn in outstanding loans to the Greek private sector. The latter dwarfs Cyprus’ gross domestic product of €18bn.

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