Brussels, 21/06/2012 (Agence Europe) - Cyprus may become the fifth eurozone nation to request financial aid from its partners over the next few days, now that Spain has made a request for aid at the Eurogroup meeting in Luxembourg on Thursday evening (see separate article) - publicity that it would rather have avoided a week before taking over the rotating presidency of the Council of the EU from Denmark.
The financial aid would be in the region of €3 billion to €5 billion and would come from two sources. The eurozone bailout funds, EFSF and ESM, would be asked to bail out the banks (hugely exposed to the Greek economy) while Russia, which has close trading and political links with Cyprus, would also provide aid.
The Cypriot Popular Bank must find €1.8bn in order to have enough capital at the end of the month to meet European Banking Authority requirements. It was nationalised due to losses because of its exposure to the Greek bond write-down and the Greek economy and like the €100bn promised to Spain by the Eurogroup to bail out banks, the eurozone aid to Cyprus would not have such tight strings attached because it is only to bail out the financial industry rather than a full-blown bailout.
The Cypriot government will find it difficult to ignore the European Commission's recommendations on its budget and economy, published at the end of last month. The recommendations cover pay restraint, pension finance, health care and clamping down on tax evasion.
In 2011, Russia gave Cyprus a €2.5bn loan on favourable conditions. On Tuesday, the International Herald Tribune said it was possible that Russian energy giant Gazprom would be given gas exploration contracts in Cyprus' waters, but this has been denied by the Cypriot government. (MB/transl.fl)