ECONOMY

Cyprus sees clearer path to aid

Greece’s election has cleared the way for Cyprus to obtain urgently-needed funds to recapitalize its banks by the end of the month, either from the EU rescue fund or a bilateral loan, its finance minister said on Tuesday.

Cyprus is heading towards a firm deadline of June 30 to find 1.8 billion euros to recapitalize its second largest lender Cyprus Popular Bank, which was hurt by its exposure to Greek debt.

That could make it the fifth eurozone country to turn to the European Union’s bailout fund, after Greece, Ireland, Portugal and Spain, but it is also considering taking a bilateral loan instead, possibly from Russia.

“We are optimistic we will get the financing we need to recapitalize the banks, whether that will be through a bilateral agreement, or through the mechanism, the EFSF,» Finance Minister Vassos Shiarly said.

“We believe that with a new Greek government now swifter arrangements can be made,» Shiarly said. «Certainly the direction we think is that Greece will have a government which will retain Greece in the eurozone, and that is a very positive development, it takes away a lot of the pressure and anxiety which may come about for the eurozone system and Cyprus.”

The Mediterranean island’s banks are heavily exposed to Greek debt, and the prospect of a new Greek government rejecting an EU bailout was viewed in Cyprus as a potential catastrophe that would multiply the cost of Nicosia’s own bailout.

Those concerns subsided after the victory in Sunday’s election by Greek conservative leader Antonis Samaris, who is committed to continuing Greece’s EU bailout.

Shiarly did not say how much Cyprus would seek beyond the 1.8 billion euros it needs to fund Cyprus Popular, which needs capital to satisfy regulators after its balance sheet was hurt by a writeoff of Greek government debt this year.

No application to the EFSF had yet been submitted, and any bid would look at overall needs of the economy, he said. Cyprus was not seeking new funds to cover its fiscal needs which are covered by current loans, Shiarly added.

“Time is pressing, we are counting the hours before June 30, and the last time I checked there are 278 hours within which we must arrange the recapitalization of the banks,» he said.

Cyprus has lost access to bond markets for financing, with bond yields on secondary markets that are well into double digits, but it was able to avoid a bailout last year by obtaining a 2.5 billion euro bilateral loan from Russia.

President Demetris Christofias, the EU’s only Communist leader, is keen to avoid the fiscal and regulatory conditions that the European Union attaches to its bailout funds. In particular, Cyprus jealously guards its 10 percent corporate tax rate, the EU’s lowest, which attracts offshore investment.

However, some political opponents could criticize him for becoming more dependent on Moscow for financing, especially with Cyprus due to take over the EU’s rotating presidency on July 1.

Cyprus officials hope that as long as any funds it seeks from the EFSF would be used to bail out banks and not to balance government books, they can obtain them without tight conditions, as Spain did in its 100 billion euro bailout this month. [Reuters]