And then there were five: Cyprus seeks EU aid
By Michele Kambas and Harry Papachristou
25 June 2012 NICOSIA/ATHENS (Reuters) – A fifth euro-zone country turned to Brussels for emergency funding on Monday when Cyprus announced it was seeking a lifeline for its banks and its budget, hours after Spain submitted a formal request to bail out its banks. Global share prices and the euro slid as investors bet that European leaders – due to meet this week for the 20th time since the currency zone’s debt crisis hit Greece in 2010 – would fail to come up with radical measures to back up weak countries. Germany’s Chancellor Angela Merkel dashed any hope that Berlin would allow joint bonds issued by the euro zone or other measures sought by partners. Cyprus joins Greece, Ireland, Portugal, and Spain in seeking EU rescue funds, meaning more than a quarter of the 17 euro zone 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 euros of funds to bail out its banks, agreed on June 9. Moody’s Investors Service cut the ratings of 28 out of 33 rated Spanish banks by one to four notches in a decision announced late Monday afternoon in New York. 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 euros – equivalent to about 10 percent of its domestic output – to meet a deadline set by European regulators to recapitalize 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 recapitalization 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. An island with just 1 million residents, Cyprus has a disproportionately large financial sector that is heavily exposed to Greece, a neighbor more than 10 times the size with which it shares a language, culture and close political links. It received 2.5 billion euros 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. […]
