Cyprus issues bailout warning
Cyprus may soon have to seek an international bailout, becoming the fourth state in the euro zone to request a rescue if it does not take urgent action to repair its finances, the island’s largest commercial bank said on Monday.
“With our inaction we are risking the ability of refinancing the state and the consequences will be immediate and serious,” Bank of Cyprus said in a statement.
“There is an imminent threat of Cyprus joining the European Union support mechanism, with whatever drawbacks that will entail.”
Since the euro zone’s sovereign debt crisis erupted last year, the EU and the International Monetary Fund have announced multi-year bailouts of Greece, Ireland and Portugal totalling 382 billion euros (336 billion pounds).
A rescue of Cyprus, which accounts for only about 0.2 percent of the 17-nation euro zone’s economy and is expected to have gross financing needs of no more than several billion euros this year, would not strain Europe’s financial resources.
But it would be an unwelcome reminder of how the region’s debt crisis can spread as problems in one country affect other states. All three major credit rating agencies have downgraded Cyprus in the last several months because its banks are sitting on an estimated 5 billion euros in Greek sovereign debt and its economy is heavily exposed to Greece through trade.
On Friday, Standard & Poor’s downgraded the island again by one notch to BBB+ and warned that another cut was possible, citing the government’s inconsistent commitments to spending cuts as well as exposure to Greece.