Cyprus: 5th Eurozone Economy Seeks Bailout?

London, UK - 12th June 2012, 08:45 GMT

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Urgent financial aid is now needed to recapitalise the Cyprus banking system before June 30th, despite its historical resilience, according to their Finance Minister Vassos Shiarly. The second-largest lender -- Cyprus Popular Bank -- is faltering because of its exposure to debt-crippled Greece. The distressed country is likely to seek a comprehensive bailout similar to Greece, Ireland and Portugal, but unlike Spain which received a banking bailout recently. Cyprus has been shut out of financial markets for a year and is surviving on a Russian loan to pay some of its bills this year. It will need the equivalent of 10% of its GDP just to prop up "Popular". Bailouts typically occur over weekends to minimise the disruption to global financial markets, which means Cyprus would have a potential slot to make any financial rescue application to the IMF-ECB-EU troika this coming weekend, when the focus will be on the Euro-critical Greek elections on June 17th, or the following weekend of June 23rd-24th by which time it will be clearer if a 'Greek exit' or 'Grexit' from the Eurozone is likely. In the interim, both the EU in Brussels and the IMF in Washington, DC, deny that they have received a bailout request from Nicosia yet. Cyprus assumes the rotating EU presidency for six months on 1st July and it is concerned that in exchange for this trans-national bailout, pressure could be applied to change its corporate tax structure which, at 10 percent, is one of the lowest in the EU. Where is the Euro-train headed as it approaches another cliff? Can the rescue bridge be built fast enough and who will pay for it?

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