The Financial Times reports that Cyprus, which has been locked out of world capital markets for almost a year, is preparing to ask the international community for a bailout of its banking sector. Close ties to a collapsing Greece have exacerbated Cyprus’ financial woes, and now it’s looking for help wherever it can get it, negotiating with Russia and Europe to see who can provide the most aid. With more chaos on the way in Greece, time may be running out:
With Cyprus Popular Bank, the country’s second-biggest lender, in need of at least €1.8bn to bolster its tier one capital ratio, a measure of banking strength, many analysts and some officials suggest the island needs to get financing in place before Greek elections this Sunday.
Popular Bank’s financing needs are due to a big writedown in its extensive holding of Greek sovereign debt. But it is also heavily exposed to Greek private sector debt – which outnumbers its stock of Greek deposits by about €3bn-4bn. That means its portfolio could be further at risk in the event of a “Grexit” from the euro or a deterioration in the Greek economy.
Unfortunately, we are now at the point where the impending collapse of yet another European country fails to make the front page, or even arouse significant media interest. In one sense, something like this was inevitable: Cyprus is a very small country whose economy is so deeply entangled with Greece that it is difficult to see how this outcome could have been avoided. This will hardly be noticed amid the general agony of the Eurozone, but that the financial meltdown of an EU member state is no longer news shows just how wide and deep Europe’s problems have become.