By MENELAOS HADJICOSTIS, Associated Press
NICOSIA, Cyprus (AP) — Officials from the European Commission, the European Central Bank and the International Monetary Fund will begin assessing next week how much bailout money Cyprus will need to prop up its banks and flagging economy, the country's finance minister said Wednesday.
Vassos Shiarly noted that the eurozone group of nations had accepted on Wednesday Cyprus' request for financial aid. He said experts from the so-called 'troika' will carry out an in-depth study into the Cypriot banking system and economy to calculate how much the country will need. He told a news conference that the study will take about a month.
The eurozone welcomed Cyprus' request for financial aid, saying that it is confident negotiated austerity measures "would address the financial, fiscal and structural challenges of the economy in a decisive manner and should allow Cyprus to return a sustainable growth path." In Washington, IMF chief Christine Lagarde said the fund is ready to join its European partners to help Cyprus return to stable economic growth and restore its banking sector.
Shiarly played down concerns that the EU bailout fund will require the kind of punishing wage cuts, job losses and tax increases that Greece had to swallow in exchange for €240 billion ($300 billion) in bailout money.
"There will be some negative repercussions on our economy, but it's not something that we cannot overcome," he said. "The support that we will receive from the European mechanism will help us to not only deal with the banking problem, but it will also help us bolster the Cypriot economy and especially in generating growth."
Cyprus, which began using the euro in 2008, needs €1.8 billion ($2.25 billion) to help recapitalize Cyprus Popular Bank, its second largest lender that suffered the biggest losses from the writedown of Greek government bonds. But on Wednesday, Bank of Cyprus — the island's largest — said it would ask the government for €500 million in "temporary support" to help it meet is own recapitalization targets.
Cyprus needs the EU bailout fund because it cannot borrow from international markets due to prohibitive interest rates brought out by its junk credit rating status and a gloomy economic forecast that sees the country's economy shrinking by a percentage point of gross domestic product this year before making a slight rebound in 2013.
The island has been surviving on a low-interest, €2.5 billion ($3.12 billion) loan from Russia this year, but that money is expected to run out by the end of the year.
Shiarly said Cyprus will continue pursuing another bilateral loan from Russia or China, adding that EU rules don't prohibit such a bid.
Cypriot officials say a loan from another country would strengthen the country's hand in negotiations with the EU on the kind of austerity measures required. Cyprus government spokesman Stefanos Stefanou said Tuesday that clinching an outside loan will have a direct bearing on how much EU bailout money will ask for.
Shiarly said he's "very optimistic" that Cyprus would be able to satisfy the terms the troika would for.