Cyprus president doesn't exclude an EU bailout

   
Cyprus president doesn't exclude an EU bailout

NICOSIA - Cyprus said on Friday it could not exclude a bailout to recapitalize a bank hobbled by exposure to Greek debt, but said it would be «chaotic» if the neighboring country left the eurozone.

Cypriot President Demetris Christofias said the prospect of the island entering a financial support mechanism wasn't a foregone conclusion, but one that could not be totally ruled out.

He also said «it would not be the end of the world» if Cyprus missed its stated target of a 2.5 percent deficit this year, and eventually hit 3 percent.

Cypriot banks have been hit heavily by exposure to debt-crippled Greece. Its second-largest lender, Cyprus Popular Bank, faces the prospect of nationalization if it does not find new investors by a mid-year deadline.

"I don't take as a given that we will negotiate entry to a support mechanism, (but) I don't want to absolutely exclude it,» Christofias told a news conference when asked if Cyprus, the eurozone's third smallest economy, could need external help.

Cyprus Popular Bank needs 1.8 billion euros to meet a core tier 1 capital - an indicator of financial strength - of 9 percent, before June 30.

The figure is equivalent to about 10 percent of Cyprus's GDP, and an amount the island can ill afford as it runs deficits and is shut out of international financial markets.

Economists and some officials on the Mediterranean island have been warning for months that it might be the latest euro zone member to need support due to problems with banking and the costs of an explosion that knocked out its main power plant last year.

That bill will likely rise if Greece leaves the euro zone given the massive exposure of Cypriot banks to Greece. The exposure is in the region of 23 billion euros, compared to the size of the Cypriot economy of around 17.3 billion euros.

Christofias said technocrats were asked to look at contingency planning to «deal with a chaotic situation» if Greece does leave the euro zone. «It is something I hope will never happen,» he said.

[Reuters]
   
   
ekathimerini.com , Saturday June 2, 2012 (12:46)