Brussels, 27/07/2011 (Agence Europe) - On Wednesday 27 July, the American ratings agency Moody's downgraded Cyprus's rating by two notches (from A2 to Baa1). It gives as its reason for this decision the concerns weighing on the budgetary and political situation of the country, which has been plunged into economic crisis since early July, with the destruction of the Vasilikos thermal power plant, which supplied 60% of the island's electricity. The Cypriot banks are also suffering knock-on effects from the economic meltdown in Greece. “Cypriot banks remain strongly exposed to the economic problems and securities issued in Greece”, stresses the agency, which argues that “there is a material risk that various Cypriot banks will need state support in the medium term”. In Cyprus, three national credit institutions own more than half of the consolidated bank assets, to the exclusion of cooperative banks.
At the most recent eurozone summit, the heads of state and government decided to give the temporary rescue fund, the EFSF facility, authorisation to intervene preventatively to support the banking sector of a country in difficulty, even if the country in question is not the recipient of international financial aid. The governor of the Central Bank of Cyprus, Athanasios Orphanides, had called on President Dimitris Christophias to push through draconian measures to prevent the country from needing to call for external aid. The repair costs of the electricity power station are likely to run to a billion euros. According to the economic forecast of the European Commission, which does not take account of the energy accident, Cyprus's state deficit is likely to be around 5.3% of national GDP in 2011 (5.1% in 2010), and public indebtedness to rise to 62.3% of GDP (60.8% in 2010). (M.B./transl.fl)