NICOSIA -- Cyprus has requested assistance from the EU bailout funds due to the recapitalization needs of its banking sector, Government Spokesman Stefanos Stefanou reiterated on Saturday.
In a written statement, Stefanou said that everybody in Europe acknowledged that the situation in Cyprus “is collateral damage of negative developments in the Greek economy”.
He added that when Cyprus took the decision to apply for funding from the EU stability mechanism, its fiscal standing was in a much better position than that of many other EU member states, while its financial indexes were better than the EU average.
The Government Spokesman went on by saying that Cyprus has been cut off from the markets, due to risks in the Cypriot banking system, whose size - he noted - is disproportionately big to the size of the Cypriot economy.
Cyprus’ deficit, Stefanou added, was the result of the global and European crisis, as was the case with almost all EU member states.
He noted that the crisis resulted in the reduction of revenue and in increased spending, a fact which subsequently led to the overturning of fiscal planning.
Stefanou also said that the government took a series of measures to tackle the crisis and to correct long standing structural problems.
The Spokesman referred to the reduction of operational spending in the public sector, the reduction of personnel, better targeting of social benefits and the support lent to SMEs and important sectors of the economy.
The Government of the Republic of Cyprus informed on the 25th of June 2012 the appropriate European authorities of its decision to submit to euro area Member States a request of financial assistance from the EFSF/ESM.
Yesterday, the Finance Minister said that the terms of the memorandum with the Troika had been agreed in relation to the fiscal consolidation program, adding that the recapitalization needs of the banks will be determined once the due diligence exercise, conducted by “PIMCO”, produces its preliminary results, on December 7. The Cyprus memorandum is expected to be discussed in depth during the Eurogroup meeting of December 13.
The purpose of the required assistance is to contain the risks to the Cypriot economy, notably those arising from the negative spill over effects through its financial sector, due to its large exposure to the Greek economy.