Cyprus announces that it has asked the help of its eurozone partners, became the fifth of the 17 countries that share the euro seeking rescue funds. “The Government of the Republic of Cyprus has today informed the European authorities of its decision to inform the member countries of the euro area demand for financial aid,” said a statement issued by the Government of Cyprus, told AFP.
The statement did not specify the requested rate relief despite local media speculated it would be in the region of five billion euros (6.4 billion U.S. dollars).
Also did not state whether they are seeking a bailout or government funds to recapitalize banks, but the statement said the request for help is a consequence of the reduction in value of debt (write-down) Greek adverse financial institution.
Cypriot government, Reuters reported, has always emphasized the financial assistance they need just to help recapitalize the banking system relative to the worsening crisis of the euro.
An EU diplomat said last week that Cyprus will first ask the Russian loan of up to 5.0 billion euros, 2.5 billion euros has been secured low-interest loans from Moscow to cover the refinancing needs this year.
Thus following a Greek Cyprus, Ireland, Portugal and Spain which officially requested assistance from the euro zone.
Cypriot government said that the write-down of Greek bonds have been hit hard banking and encouraged her to seek help.
“The purpose of the assistance required is to overcome the risks to the economy of Cyprus, especially those arising from the negative spillover effects on the financial sector, due to a large exposure to the Greek economy,”
Cyprus also could seek foreign loans either from Russia or China gunan cover debt refinancing needs for 2013.
Cyprus confirmed the request just hours after Spain formally requested the banking rescue. The second request is being viewed European Financial Stability Facility and / or the European Stability Mechanism for help.
No data are published by Madrid, but the euro zone governments have agreed to place up to 100 billion euros (125 billion U.S. dollars) in loans.
The news comes as Cyprus prepares to take a turn to the EU presidency for six months on July 1.
Fitch Ratings downgraded the debt of Cyprus, because the demand for rescue has been widely anticipated in recent weeks.
Fitch said the downgrade “primarily due to exposure of Greek firms and households to the three largest banks – Bank of Cyprus, Cyprus Popular Bank and Hellenic Bank.” The credit rating agency said the Cypriot banks will require a capital injection of potentially up to 4.0 billion euros (5.0 billion dollars) – 24 percent of the island’s gross domestic product – in addition to 1.8 billion euros that have been allocated to Cyprus Popular Bank.
Greece has been forced to seek bail two times from the EU and the International Monetary Fund, the first for the 110 billion euro in 2010 and then to 130 mylar euro earlier this year. Greece also has 107 billion euros of private debt.
Portugal agreed to reform measures and savings in May 2011 in exchange for a package of 78 billion euros.
Ireland had to ask the IMF and EU for a bailout of 85 billion euros in November 2010.
Cyprus President Demetris Christofias has called an emergency meeting of party leaders on Tuesday to discuss the state of the recession that hit the local economy.
He was reluctant to seek a bailout of the European Union fear the consequences of the austerity measures imposed tougher Brussels.
Cyprus is very protective of the low corporation tax rate of 10 percent which helped to attract much needed foreign investment.
Both commercial banks and state banks have been able to borrow from international financial markets since June last year, because the island’s debt cut to junk status by two of the three international credit agencies.