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11 June 2012

WSJ: Cyprus to become fifth eurozone nation seeking bailout

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Cyprus Finance Minister, Vassos Shiarly, said that the country's need for an international bailout was "exceptionally urgent" in order for it to recapitalise its banks, and that the issue would need to be resolved by the end of the month.

The size of any bailout would be unlikely to exceed €3 billion to €4 billion, a sum that wouldn't strain the resources of the eurozone's bailout funds. However, some European officials said the main impact of Cyprus's request on Monday might be to send a further signal that contagion is spreading in the eurozone. Greece, Ireland and Portugal are all in bailout programmes. Officials said Cyprus's government would probably seek funds along the model for loans to Spain, under which conditions will be placed on the country's banking sector but no new impositions will be placed on the way it manages its economy.

Mr Shiarly said no request for aid had been made, but commented: "We have never ruled out the possibility that we will apply to the bailout mechanism for support. The mechanism is one of our choices."

The European Commission said it had received no indication of any aid request. "We know that the Cypriot banking sector is under heavy pressure; we are monitoring that", said Amadeu Altafaj-Tardio, a Commission spokesman

Last month, the Cypriot Parliament approved a plan to support Cyprus Popular Bank after the bank wrote down some €2 billion from the Greek restructuring. Cyprus secured a €2.5 billion loan agreement from Russia last year that staved off the immediate need for a bailout. The government had been exploring whether it could seek Chinese or further Russian funding but these options now seem unlikely.

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© Wall Street Journal

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