Cyprus bank warns against 'bad' EU bailout

02.08.11 @ 09:27

  1. By Valentina Pop
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BRUSSELS - The Bank of Cyprus on Monday (1 August) warned that any further delay in appointing a government may lead to an EU bailout "with everything bad that entails."

  • Residents in Nicosia have been asked not to use air conditioning as temperatures hit 38 degrees Celsius in the shade on Monday (Photo: Orestis Kyriakides)

"With our inaction we are risking the ability of refinancing the state and the consequences will be instant and serious," a statement from the largest Cypriot commercial bank said after President Demetris Christofias failed to put together a new cabinet over the weekend.

Christofias ordered the resignation of the government last Thursday.

The move came three weeks after a blast at a naval base which killed 13 people and wiped out the island's main power plant. Estimates say the blast will cost the country a 17 percent drop in GDP this year.

Meanwhile, residents in the capital, Nicosia, have been advised not to use air conditioning devices despite scorching heat. Daily power cuts have also become commonplace since the 11 July explosion.

Both Standard & Poor's and Moody's ratings agencies last week downgraded Cyprus' bonds due to the political and economic crisis.

Angry protesters have been asking for Christofias to leave, blaming leaders for having left 2,000 tons of munition festering in the summer heat despite warnings by military experts.

"There is an immediate threat of the country entering the European Union's support mechanism with everything bad that entails," the Bank of Cyprus noted. "Time has run out. We are at that turning point at which history will judge us. It's time for immediate and effective action."

For its part, the EU commission on Monday denied that it is discussing financial assistance for the small island nation.

"The issue of financial assistance package is not on the table," it said in a statement.

"We are confident the Cypriot authorities will fulfil their commitments. And fully expect them to do what is necessary ... The Cypriot authorities can rely on the full support of the Commission in its effort to consolidate its finances and re-launch the economy."

It added that Nicosia needs to lower its budget deficit to 4 percent of GDP in 2011 and to 2.5 percent in 2012.

The Cypriot finance ministry also rejected speculation that the country will need a bailout, saying it has no significant funding needs until mid-December.

If Cyprus applies for help it would be the fourth country in the 17-member eurozone to do so after Greece, Ireland and Portugal.