Cyprus could seek as much as €4 billion in emergency help and is looking to Europe, Russia and China for the best possible bailout terms, according to news reports in a nation that is next in line to hold the rotating EU presidency.
Deputy European Affairs Minister Andreas Mavroyiannis didn’t deny reports that Cyprus was planning to ask Russia and China for a bailout.
"Everything is on the table," Mavroyiannis told Reuters. "It can be a combination [of bilateral and European money]. I don't know if it will be Russia or China."
Haravghi, a newspaper that generally supports the ruling Progress Party of Working People (AKEL), said attempts were under way to borrow from a third country with "more favourable terms". A newspaper report yesterday (13 June) did not name that country, but four other newspapers suggested Russia.
Russia is an important business partner and came to the aid of Cyprus last year with a €2.5 billion loan, to be repaid in 4.5 years at a rate of 4.5%. Government spokesman Stephanos Stephanou said at that time that there were no “strings attached” to the loan.
Mavroyannis said €1.8 billion was needed within the next few weeks to recapitalise the struggling Cyprus Popular Bank but that other banks may need money too.
He said if Cyprus chose to tap the EU bailout mechanism, it might ask for more than the €1.8 billion to be on the safe side.
"We are talking about figures that could be €3 or €4 billion maximum," Mavroyiannis said. Cyprus' gross domestic product is less than €19 billion.
The country is seeking ways to avoid tapping EU funds because of what Mavroyiannis described as the "negative connotation" that comes with it. EU bailouts come with conditions on how to cut debt.
The Cypriot ambassador to the EU, Kornelios Korneliou, said last week that his country was likely to ask for a bailout, but he added that it was still waiting to see “what happens in Spain”. EU leaders agreed last weekend to provide €100 billion to help shore up Spain's troubled banks.
Amadeu Altafaj, spokesperson for Economic and Monetary Affairs Commissioner Olli Rehn, told EurActiv that hat Cyprus had not submitted any request for financial assistance and that the EU executive had no indication that it could come in the immediate future.
"If we eventually apply, because it is not a given that we will apply [and] there are also other options, we will seek the best possible terms for the economy," Panicos Demetriades, the governor of Cyprus's central bank, was quoted as saying.
Cyprus has repeatedly displayed caution about strings that may be attached to any bailout from its EU partners, the Cyprus Finance Mirror website reported.
The government's primary concern is that its cherished 10% corporate tax rate could be compromised, news media reported. Austerity measures similar to those imposed on other bailed-out states, including Greece, would also force the government into unpopular spending cuts ahead of a general election due by February 2013.
A resort to bilateral lending rather than EU partners would raise eyebrows within the bloc, particularly as Cyprus is poised to succeed Denmark in the European Union's rotating presidency on 1 July.
Moody’s cut its credit ratings on Cyprus' sovereign debt by two notches, to Ba3 from Ba1, citing rising risks of a Greek exit from the euro currency and an already strained fiscal position.