Cypriot government officials have asked the International Monetary Fund for financial assistance to help it deal with the country's banking crisis.
"We expect to send an IMF team to Cyprus to evaluate the situation in the field as soon as possible in preparation for
discussions on an economic program that will help Cyprus meet the economic challenges it is facing," IMF Managing Director Christine Lagarde said in a statement today.
Bailout negotiations for Cyprus are set to coincide with the island republic's assumption of the EU presidency, following the government's formal application for financial support for the banking sector, which is overexposed to toxic Greek debt.
The Cypriot central bank, itself accused of failing to regulate the banks to avert involvement in the Greek meltdown, yesterday gave its support to the decision to seek help.
The Nicosia daily Financial Mirror said Cyprus had joined the Republic, Greece, Portugal and Spain in the EU's "emergency ward". Cypriots, bored and bemused by the government's protracted efforts to avoid a bailout, were surprised the sum required could reach €10 billion.
This is more than half the country's €17.3 billion economy – but a small fraction of the sums required by Spain and Greece.
Many Cypriots had believed the request would be for €1.8 billion, the sum needed by June 30th to refinance the Popular Bank, the second-largest Cypriot bank and the most infected with Greek debt.
Officials argue the final amount "is to be negotiated". However, the projected sum has given rise to concern that two other banks – the Bank of Cyprus, which is the largest bank in the country, and the Hellenic Bank – are also in trouble and that the economy is in a much worse position than the government has acknowledged.
Cypriot banks, which hold €23 billion in Greek business and household debt, could suffer catastrophic losses if Greece were to default and leave the 17-member euro zone.
Hoping to minimise the sum requested from the EU, Cypriot finance minister Vassos Shiarly said Nicosia would continue its quest for bilateral loans.
The government has procrastinated and prevaricated over applying to the EU for relief because the ruling Communist Party is unwilling to impose cuts on the salaries and benefits of well-paid and well-organised civil servants or to exact unpopular tax increases ahead of the 2013 presidential election.