The fiscal situation in Cyprus, the fifth euro-area nation to seek international aid, is “more serious than Greece,” a danger overlooked by markets, Luxembourg Prime Minister Jean-Claude Juncker (photo) said on Friday.
]“My priority in the short term for 2013 is Cyprus,” Juncker, who heads the group of euro-area finance ministers, told reporters in Brussels.
“It’s a problem one shouldn’t underestimate, because it’s more serious than Greece. This isn’t taken into consideration by the financial markets or the international press.”
Cypriot banks need about 9.3 billion euros in fresh capital, according to a preliminary report by Pacific Investment Management Co, Cypriot broadcaster RIK reported last Sunday.
Another 6 billion euros may be needed to refinance state debt and 1.5 billion to cover fiscal deficits, Finance Minister Vassos Shiarly said on November 22.
That would bring the total to 16.8 billion euros, almost the size of Cyprus’s 17.9-billion-euro economy.
The country’s general government gross debt will rise to 89.7 percent of gross domestic product this year, according to the European Commission.
That figure does not take into account any aid Cyprus may receive.
“Cyprus’s debt is extremely high and the money they need makes up basically 100 percent of their GDP,” Juncker said in an interview.
“It’s a very serious situation.”
President Dimitris Christofias said on Friday that Cyprus has an agreement in principle with the so-called troika that oversees euro-area bailouts, and the accord will be signed after the results of PIMCO’s assessment are available in mid-January.
“The negotiations have been difficult,” he said.