NICOSIA, Cyprus (AP) — Cyprus' Finance Minister warned Wednesday that the eurozone country could seek a European Union bailout to help recapitalize its banking sector before crucial elections in Greece this Sunday.
Vassos Shiarly said that the Greek elections — seen as a vote on whether the debt-wracked country stays or leaves the eurozone — are a key factor to Cyprus' decision whether to become the fifth eurozone member to ask for EU bailout money.
"The chosen time (to seek a bailout) will be decided in cooperation with all European Union partners, either within the eurozone or the Union as a whole," Shiarly told a business forum in the capital, Nicosia.
"We also know that the deadline by which the recapitalization of banks has to be completed is very, very close ... But because the problem that may arise from the (Greek) elections this coming Sunday is perhaps of the highest importance, this is also taken into account in our overall assessment."
Shiarly cited the example of Spain, which last weekend asked for a loan lifeline of up to €100 billion ($125 billion) from the 17 countries that use the euro to shore up Spanish banks.
"In most cases action is taken and the appropriate moment, meaning when the markets are closed," he said.
Unable to borrow from international markets because of its junk credit rating, Cyprus has until June 30th to come up with €1.8 billion ($22.5 billion) — a tenth of its budget — to support Cyprus Popular Bank, its second largest lender which is most exposed to Greek debt and is unlikely to raise the money on its own.
Shiarly and other Cypriot officials have said that the money could either come from the EU bailout fund, or through a loan from another country.
Either way, time is running out for the tiny country of 850,000 people with strong cultural and business ties to Greece as the possibility over an anti-bailout party victory in Sunday's vote could further harm Cyprus' economy.
Greece is holding the June 17 repeat election following an inconclusive May 6 ballot in which voters turned to smaller, mainly anti-bailout groups that have promised to renege on Greece's austerity commitments that were made in exchange for international bailout money.
France's new President Francois Hollande on Wednesday warned that the election outcome could see them pushed out of the eurozone if anti-bailout parties emerge victorious.
Fitch ratings agency on Wednesday warned that Cypriot banks would suffer most from a Greek euro exit given their direct exposure to Greek loans and the country's economy through their large branch networks there.
Cyprus has vowed to stick to a 2012 deficit target of 2.5 percent of gross domestic product and is drafting additional spending cuts and tax rises to fix a 1 percent deviation. More importantly, Cyprus wants to be seen by its EU partners as living up to its promises in the hope of clinching favorable terms on a possible EU bailout, such as protecting its low 10 percent corporate tax — a key selling point for its large services sector.
Cyprus President Dimitris Christofias repeated Wednesday that the measures won't come at the expense of wage earners or pensioners.