Cyprus asks for EU bailout, weighs loans from Russia, China
In a brief statement from Nicosia, the Cypriot government said it was forced to ask EU colleagues for an unspecified sum because of "negative spillover effects through its financial sector, due to its large exposure in the Greek economy."
Cypriot banks suffered heavy losses earlier this year when the value of the Greek government bonds it holds was written down. Cyprus banks also hold about $27.5 billion in Greek private-sector debt, repayment of which would be in doubt if Greece opts out of the common currency or is expelled for failing to live up to belt-tightening commitments made in exchange for bailouts.
Cypriot government spokesman Stefanos Stefanou also said the island state was also in discussions concerning possible loans from Russia and China that may be offered without the tough austerity measures that Eurozone colleagues have demanded of bailout recipients Greece, Portugal, Ireland and, most recently, Spain.
Nicosia has already borrowed about $3.1 billion from Moscow, and Russian media reported last week that additional lending on favorable terms was being discussed for Cyprus. Russian private business owners often take advantage of the tax haven offered by the Cypriot offshore financial industry, and Moscow has long been in search of a warm-water port in a friendly state in the Mediterranean.
Like much of the Eurozone, Cyprus has been mired in recession. The International Monetary Fund estimates that the nation's economy will shrink by 1.2% this year.
Economists estimate that Cyprus will need at least $12.5 billion to recapitalize its banks. European Commission spokesman Amadeu Altafaj-Tardio told journalists last week that European lending institutions were already on standby to provide help.
Cyprus, the third-smallest economy in the 17-nation Eurozone, is set to take over the rotating EU presidency on July 1.
-- Carol J. Williams in Los Angeles
Photo: A woman draws funds from a cash machine of the Marfin Popular Bank in Nicosia, Cyprus, on Monday. Credit: Katia Christodoulou / EPA