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| Cypriot President Demetris Christofias |
The Cypriot
government has issued a statement confirming that it has officially made an EU
bailout bid, citing heavy exposure to debt-stricken Greece. This makes it the
fifth state within the currency union to ask for help.
The request
comes just days before a deadline to recapitalize one of the country’s largest
banks.
“The
purpose of the required assistance is to contain the risks to the Cypriot
economy, notably those arising from the negative spillover effects through its
financial sector, due to its large exposure in the Greek economy,” the
government's statement said.
Government
spokesman Stefanos Stefanou wouldn't reveal how much Cyprus would ask for,
saying the amount is subject to negotiations. The 27 EU leaders are meeting in
Brussels on Thursday and Friday, where the subject will be discussed.
Analysts
estimate the sum is likely be around €5 billion ($6.2 billion), but could be as
high as €10 billion ($12.5 billion). It is a fraction of the bailouts given to
other EU countries, with the latest sufferer Spain asking for as much as €100
billion ($125 billion) for its banks.
Earlier, US
ratings agency Fitch downgraded Cyprus to "junk" status. The move was
prompted by the amount of rescue money that would be needed to bail out its
Greece-exposed banks. The ratings agency estimated that the country will need
another €4 billion to recapitalize its banking sector.
The
government spokesman said Monday that Cyprus would continue negotiations for
another possible loan from a country outside the EU, such as Russia or China.
"One doesn't preclude the other," Stefanou told AP. "Our efforts
to secure a bilateral loan will continue."
However,
Cypriot Finance Minister Vassos Chiarly recently said he would prefer eurozone
assistance to aid from Russia, which has already given Cyprus a €2.5 billion
loan.
The island
nation joined the eurozone in 2004 and began using the common currency four
years later.
The
eurozone crisis has reached a tipping point, especially in the case of Cyprus,
says crisis researcher Jerome Roos. “The mutual dependence of banks and states
on one another has reached the point where the state is no longer capable of
propping up its own banks, and the banks are no longer capable of propping up
their own government,” he told RT.
“So
basically what needs to happen is that external forces need to come in to prop
up the Cypriot government so it can continue bailing out its own banks.”
If the
Cypriot government were to continue bailing out its banks without external
help, its credit rating would go so far down that it would lose access to
foreign credit markets, Roos explained.
One
of the main threats to Europe’s economic stability are the big banks, which
have become too reliant on rescue. “The banks have been taking enormous risks
knowing that if they take losses, if something goes wrong, if the fire spreads,
they’ll be bailed out eventually. It’s a moral hazard issue.”
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