Cyprus would seek EU bailout money 'if necessary'

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Demetris Christofias
Image caption,
President Demetris Christofias had previously rejected suggestions Cyprus would need an EU bailout

Cyprus appears to be edging closer to a bailout, with the central bank governor saying that the country will seek European Union aid if necessary.

The comments by Panicos Demetriades, made in an interview with the Financial Times, echo remarks on Friday by president Demetris Christofias.

Cyprus had previously firmly rejected suggestions of a bailout, but its banking system is exposed to Greece.

Mr Demetriades told the FT that Cyprus was at "an important crunch time".

At the end of June, the Cyprus Popular Bank faces a deadline to find at least 1.8bn euros to meet new EU capital requirement rules.

There is a growing belief among analysts that the money will have to come from the European Financial Stability Facility.

On Friday, Mr Christofias told a news conference: "I don't take as a given that we will negotiate entry to a support mechanism, (but) I don't want to absolutely exclude it."

'Chaotic situation'

The Cypriot financial system has an exposure to Greece estimated at 23bn euros, compared with the size of the Cypriot economy of around 17.3bn euros.

Mr Christofias said officials are looking at contingency planning to "deal with a chaotic situation" if Greece leaves the eurozone.

"It is something I hope will never happen," he said.

Last year Cyprus, who credit status has been downgraded to junk by two of the three main ratings agencies, borrowed 2.5bn euros from Russia.

In his FT interview, Mr Demetriades, who became governor only last month, said further private sector or government borrowing might be possible.

But he said: "There is a backstop there and the backstop is the European Financial Stability Facility, and that backstop will be used if necessary."