Greek Domino effect hits " Cyprus"
Serious Possibility' Cyprus May Need Bailout
Dow Jones Newswires 06-05-12 1235ET
ATHENS -- Cyprus acknowledged Tuesday that there is a "serious possibility" it may become the fourth euro-zone country to seek financial aid under Europe's temporary bailout fund in order to protect its banking system
which is heavily exposed to Greece's widening financial crisis.
"The possibility of addressing the financial stability mechanism to support the banking system, due to the problems created by excessive exposure of banks to Greece, is a serious possibility," Deputy Government Spokesman Christos Christofides told reporters.
He added that the government is examining various ways to support the country's banking system, which include "finding the loan from somewhere else".
The fallout from the Athens crisis already has forced Cyprus's second-biggest bank to seek government support for a planned multibillion euro recapitalization, something that will push the island's public finances deep into the red and cause it to miss this year's budget targets.
Late last year, the country negotiated a EUR2.5 billion bilateral loan from Russia. Now, Cyprus is in talks with China for another bilateral loan, of an undisclosed amount, that looks unlikely to materialize in time.
Cyprus also is scrambling to announce a new package of austerity measures within the next 10 days, amid signs of disagreements within the government over the scope of planned cutbacks. The government is committed to getting its bloated deficit to below 3% this year from 6.4% in 2011.
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