Cyprus: bank crisis will not spoil EU presidency

It added: "Cyprus has all the potential and, most importantly, the will to act as an honest broker, with the aim of furthering European integration and of a better Europe."

Its status as an honest broker will be tested on Tuesday when it chairs its first meeting of EU finance ministers at the same time as angling for soft bailout terms.

Cyprus last week formally applied for EU help.

The decision on whether this will be a Spanish-type bank bailout only or a Greek-type state rescue, as well as the size of the outside help, is to be taken in early August.

Monday's Cypriot communique said the problem is confined to lack of bank capital and underlined the island's competitiveness - a potential reference to its low corporate tax rate and flexible wage laws, two features which could come under pressure from EU negotiators in the bailout talks.

"For sure we need a bailout for the banks. The amount is already there - €2.3 billion. If there are other needs and how big they are, this is a matter for negotiations," Cypriot spokesman Michalis Koumides told EUobserver.

Euro-using countries' finance ministers are meeting in Brussels on Monday ahead of the EU finance ministers' event.

They are expected to give Spain more time to meet budget discipline targets.

But early reports indicate that Luxembourg threatened to veto the move unless Spain backed the installation of a Luxembourgish official, Yves Mersch, on the board if the European Central Bank in place of a Spanish candidate.

Meanwhile, the Greek delegation suffered a political setback ahead of Monday's event when a minister resigned over EU bailout terms.

Nikos Nikolopoulos, the deputy labour minister said in his resignation letter that the new government is giving into EU austerity too easily.

"The issue of renegotiating with the troika, as well as the correction of significant distortions in labor, pension, social security and welfare issues, should have been emphatically put on the table from the start," he wrote.

Nikolopoulos is the third minister to go from the new government.

Finance minister Vassilis Rapanos resigned on 25 June for health reasons. Shipping minister Giorgos Vernikos stepped down shortly later when it came out he was the owner of an offshore firm, in violation of Greek rules.