EURO zone member Cyprus strongly hinted on Monday it may have to apply for an international bailout before the end of this month, both for its banks and its general coffers.
“The issue is urgent. We know the recapitalisation of the (island’s) banks must be completed by June 30, and there are a few days left,” Finance Minister Vassos Shiarly told journalists.
Cyprus is under growing pressure to apply for aid to salvage its second-largest lender Cyprus Popular Bank, bowed by its exposure to debt-crippled Greece, ahead of a regulatory deadline of June 30.
It assumes the rotating EU presidency for six months the following day.
Responding to a question on whether any potential bid for aid would be focused on support for its banks, Shiarly said in his view it would be a comprehensive package, based on existing practice.
“When one applies to the support mechanism you take into account all the facts, including needs which may arise in coming periods. Consequently it would be a comprehensive request covering not only present circumstances and the recapitalisation of the banks but also future needs,” he said.
The cash-strapped country, shut out of financial markets for a year and running deficits, will need the equivalent of 10% of its gross domestic product just to prop up Popular, which is looking for an investor willing to fill a 1.8 billion regulatory shortfall, or the government must come to its aid.
Shiarly said he could not say how much a potential aid request could total. Cyprus has just over 2.0 billion euros in short-term debt maturing next year.
Timings wise, and because bailouts typically occur over weekends to minimise disruption to markets, Cyprus would in theory have a slot to make any application next weekend, when the focus will be on the Greek election on June 17, or the weekend of June 23-24.
Yet the island, representing 0.2% of the euro zone’s economy, has so far shown reluctance to take the plunge, spooked at the experience of Greece and worried that pressure could be applied to change its tax regime which is one of the lowest in the EU.
As potential leverage, it is negotiating separately with a third country in the hope that it could secure better bailout terms from its EU partners.
That country has not been named, but it is widely thought to be China. Cyprus received a 2.5 billion euro bilateral loan from Russia late last year, sidestepping its EU partners.
Earlier, Shiarly told lawmakers in Cyprus’s parliament that he had anticipated some conclusion to discussions at the end of May, but that he now expected news “very soon”.