Cyprus announces move to apply for EU bailout
Cyprus informed European authorities today of its decision to request financial assistance from the euro area's bailout funds, the government said in a statement this evening.
Cyprus's finance ministry said earlier today that it was confident the government could tackle the challenges facing its economy after Fitch downgraded the country's rating to junk.
"The Republic of Cyprus, on both a national and European Union level, has at its disposal all the necessary tools to fully protect the sound operation of the financial system and to further deal with the economic challenges of today," the Nicosia-based ministry said in a statement today.
Cyprus, which has been shut out of financial markets since May last year, is considering requesting aid from the euro area and Russia, and is also reaching out to China.
The head of the euro-area finance ministers group said today they will "swiftly examine" the financial aid request from Cyprus.
Luxembourg Prime Minister Jean-Claude Juncker, who heads the eurogroup, said European Union officials would "negotiate the necessary policy conditionality, which shall accompany the financial assistance."
"This will include measures that will address the main challenges of the Cyprus' economy, primarily those of the financial sector and I expect that Cyprus will engage with strong determination in the required policy actions," Mr Juncker said in an e-mailed statement
Cyprus, which is the euro area's third-smallest economy, may see its debt climb to more than 100 per cent of gross domestic product, Fitch said.
Public debt soared from 61.5 per cent in 2010 to 71.6 per cent last year.
Cypriot government spokesman Stefanos Stefanou said on June 20th that Cyprus is in talks with the European Union.
"We are in continuous touch and dialogue with the European partners and EU's institutions and work simultaneously in the direction of securing a bilateral loan from another country," Mr Stefanou said in a statement.
The EU is pressing Cyprus to seek a full-fledged rescue program of as much as €10 billion that comes with a range of economic and financial-sector conditions.
Cyprus has sought to minimise conditions and focus any aid on its banks. Luxembourg prime minister Jean-Claude Juncker, who leads the group of euro-area finance ministers, said on June 21st that Cyprus has "serious imbalances."
Greece, Ireland and Portugal have already had international bailouts.
Cyprus is fiercely protective of a corporate tax rate that is one of the lowest in the EU and eight months before a general election shows no appetite for the stringent spending cuts that any EU funding would tie it to.
"I think they want to avoid it (the EFSF) at least as the sole provider simply because they are afraid of the strings
attached," said political analyst Hubert Faustman.
Officials say any aid via the EFSF would likely be restricted to the banking sector and not to broader budgetary
Cyprus, with just 1 million people, has a disproportionately large off shore financial sector that is heavily exposed to
Greece, the larger neighbour with which it has close political links