Cyprus may ask for bailout before Greek elections
Cyprus' Finance Minister
warned Wednesday that the eurozone country could seek a European Union bailout
to help recapitalize its banking sector before crucial elections in Greece this
Sunday.Vassos Shiarly said that the Greek elections — seen as a vote on whether
the debt-wracked country stays or leaves the eurozone — are a key factor to
Cyprus' decision whether to become the fifth eurozone member to ask for EU
bailout money."The chosen time (to seek a bailout) will be decided in
cooperation with all European Union partners, either within the eurozone or the
Union as a whole," Shiarly told a
business forum in the capital, Nicosia."We also know that the
deadline by which the recapitalization of banks has to be completed is very,
very close ... But because the problem that may arise from the (Greek)
elections this coming Sunday is perhaps of the highest importance, this is also
taken into account in our overall assessment."Shiarly cited the example of
Spain, which last weekend asked for a loan lifeline
of up to (EURO)100 billion ($125 billion) from the 17 countries that use the
euro to shore up Spanish banks."In most cases action is taken and the
appropriate moment, meaning when the markets are closed," he said.Unable
to borrow from international markets because of its junk credit rating, Cyprus
has until June 30th to come up with (EURO)1.8 billion ($22.5 billion) — a tenth
of its budget — to support Cyprus Popular Bank, its second largest lender which
is most exposed to Greek debt and is unlikely to raise the money on its
own.Shiarly and other Cypriot officials have said that the money could either
come from the EU bailout fund, or through a loan from another country.Either
way, time is running out for the tiny country of 850,000 people with strong
cultural and business ties to Greece as the possibility over an anti-bailout
party victory in Sunday's vote could further harm Cyprus' economy.Greece is
holding the June 17 repeat election following an inconclusive May 6 ballot in
which voters turned to smaller, mainly anti-bailout groups that have promised
to renege on Greece's austerity commitments that were made in exchange for
international bailout money.France's new President Francois Hollande on
Wednesday warned that the election outcome could see them pushed out of the
eurozone if anti-bailout parties emerge victorious.Fitch ratings agency on
Wednesday warned that Cypriot banks would suffer most from a Greek euro exit
given their direct exposure to Greek loans and the country's economy through
their large branch networks there.Cyprus has vowed to stick to a 2012 deficit
target of 2.5 percent of gross domestic product and is drafting additional
spending cuts and tax rises to fix a 1 percent deviation. More importantly,
Cyprus wants to be seen by its EU partners as living up to its promises in the
hope of clinching favorable terms on a possible EU bailout, such as protecting
its low 10 percent corporate tax — a key selling point for its large services
sector.Cyprus President Dimitris Christofias repeated Wednesday that the
measures won't come at the expense of wage earners or pensioners.
ITALIAN FEARS OVER SPAIN CONTAGION
Italian
premier Mario Monti has seen nearly seven months of confidence-building efforts
by his government wiped out as a debt auction revealed that the country's
borrowing rates are back near levels last seen in December.A sale of 12-month
bonds, a warm-up for Thursday's weightier long-term debt auction, demonstrated
the speed with which market jitters spread from Spain following Madrid's
weekend concession that its banks need a bailout.Italy paid an interest rate of
3.972% - up from 2.34% in a similar auction last month - to borrow 6.5 billion
euro (£5.23 billion) in 12-month money from bond markets. Though demand
was strong, the high rate suggests investors worry Italy may need a rescue of
its own if Spain takes one.
"Contagion is back with a vengeance, and Italy is bearing the brunt of the fallout from Spain's request for external assistance," said sovereign debt expert Nicholas Spiro. Markets, he noted, are no longer differentiating fiscally-stronger Italy from Spain, "which is a sign that panic has set in".Just before the sale, Mr Monti urged politicians to speed the pace of reforms in a bid to persuade sceptical investors - whom he referred to as "observers that don't nurture an innate sympathy for our country"- that Italy was willing to make the necessary sacrifices to escape the debt crisis.Although Italy's deficit is relatively low, at 3.6% of GDP compared with Spain's 8.5%, the economy is not growing and overall debt is huge, at 1.9 trillion euro (£1.5 trillion). To lower that debt, the economy needs to become more competitive.That has been Mr Monti's task since taking office in November. His technocratic government passed a package of tax rises and spending cuts in December, and has been moving ahead with structural reforms but has found resistance from both lobbies and politicians alike.
The premier also made it clear that a broad European action plan is needed to avoid a spread of market panic from Spain to other countries like Italy, calling for concrete measures to be agreed at a June 28 EU summit.Mr Monti backed measures such as eurobonds, jointly issued European debt that would spread risk across countries, but which Germany has firmly opposed.He said they would not need to be introduced this year, but plans should be put in place.
"Contagion is back with a vengeance, and Italy is bearing the brunt of the fallout from Spain's request for external assistance," said sovereign debt expert Nicholas Spiro. Markets, he noted, are no longer differentiating fiscally-stronger Italy from Spain, "which is a sign that panic has set in".Just before the sale, Mr Monti urged politicians to speed the pace of reforms in a bid to persuade sceptical investors - whom he referred to as "observers that don't nurture an innate sympathy for our country"- that Italy was willing to make the necessary sacrifices to escape the debt crisis.Although Italy's deficit is relatively low, at 3.6% of GDP compared with Spain's 8.5%, the economy is not growing and overall debt is huge, at 1.9 trillion euro (£1.5 trillion). To lower that debt, the economy needs to become more competitive.That has been Mr Monti's task since taking office in November. His technocratic government passed a package of tax rises and spending cuts in December, and has been moving ahead with structural reforms but has found resistance from both lobbies and politicians alike.
The premier also made it clear that a broad European action plan is needed to avoid a spread of market panic from Spain to other countries like Italy, calling for concrete measures to be agreed at a June 28 EU summit.Mr Monti backed measures such as eurobonds, jointly issued European debt that would spread risk across countries, but which Germany has firmly opposed.He said they would not need to be introduced this year, but plans should be put in place.
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