With days to go before taking over the EU’s rotating presidency, Cyprus yesterday (25 June) became the fifth eurozone country to turn to Brussels for emergency funding. The move came just hours after Spain submitted a formal request to bail out its banks.

Cyprus joins Greece, Ireland, Portugal and Spain in seeking EU rescue funds, meaning more than one-quarter of the 17 eurozone members are now in the bloc's emergency ward. Italy's funding costs have soared too, which means it could be next.

Spain formally submitted its request for up to €100 billion to bail out its banks, agreed on 9 June.

Moody's Investors Service cut the ratings of 28 out of 33 rated Spanish banks by one to four notches. Those downgrades followed a cut of Spain's sovereign rating to just above junk status earlier this month.

Tiny Cyprus has just four days to raise at least €1.8 billion - equivalent to about 10% of its domestic output - to meet a deadline set by European regulators to recapitalise Cyprus Popular Bank, its second largest lender which saw its balance sheet hurt by bad Greek debt.

Finance Minister Vassos Shiarly said the country would also seek enough money to help with its budget deficit. The full amount would be decided over the course of weeks.

"The amount will be as much as it may be needed to cover the recapitalisation and fiscal requirements," he told Reuters.

With its coffers emptying rapidly and hurtling towards an immovable deadline, Cyprus suffered a further sovereign credit rating cut on Monday by Fitch, to the junk BB+ grade. It is already shut out from raising new funds on capital markets, with yields on existing bonds well into double digits.

Heavy exposure

An island with just 1 million residents, Cyprus has a disproportionately large financial sector that is heavily exposed to Greece.

Cyprus assumes the rotating presidency of the Council of the EU on 1 July in difficult times and in a tense atmosphere with Turkey, an EU candidate country that doesn’t recognise the Republic of Cyprus and has occupied the northern part of the island since 1974 (see our Links Dossier ‘The Cyprus EU Presidency: Breaking with tradition’).

Cyprus received €2.5 billion in a loan from Russia last year and has been scrambling for funding from Moscow or Beijing to avoid the terms Brussels imposes in return for EU bailouts.

Jean-Claude Juncker, head of the Eurogroup, said Cyprus would have to negotiate aid conditions with the EU and European Central Bank.

"This will include measures that will address the main challenges of the Cyprus economy, primarily those of the financial sector, and I expect that Cyprus will engage with strong determination in the required policy actions," he said.

Papoulias to represent Greece at summit

Greece, which brought the eurozone back from the brink of breaking up by electing a government this month committed to implementing its €130 billion bailout programme, was also thrown into confusion on Monday when its new finance minister, Vassilis Rapanos was forced to resign due to ill health. It is still unclear who will replace him.

Newly elected Prime Minister Antonis Samaras, who wants to win easier terms from the EU for the bailout, will also miss the European summit because of an eye operation. President Karolos Papoulias will represent Greece at the 28-29 June EU summit, it was announced.

A German spokesman said no decisions would be taken on Greece at the EU summit.

A visit by "troika" inspectors representing Greece's international creditors - the EU, European Central Bank and IMF - due this week has been postponed.