Ten billion already seemed too much. Today they risk being too few. According to the experts of the Troika (EU, ECB and IMF) the Cypriot economy is in a "worse than expected" state and for this reason it will need further painful corrective measures in the coming months. Not only due to the high exposure of banks to the Greek crisis, but also due to internal fiscal imbalances.
According to Maarten Verwey, Troika officer, “it is clear that Cyprus has problems in the banking sector. It's not just the individual major lenders, the problems affect the whole system”. Cypriot banks have lost over 4 billion euros due to Greek debt restructuring. The government had to buy out the second largest bank in the country, the Cyprus Popular Bank, by subscribing to a capital increase of 1,8 billion. On June 27, the Bank of Cyprus asked for 500 million in temporary aid to meet ordinary commitments.
Cyprus is the fifth country in the Eurozone to have requested financial aid, however the amount the island needs has not yet been specified. According to the Troika this year the island should reduce its deficit to 2,5% of GDP from 6,3% in 2011, but the economy will remain in recession both in 2012 and 2013. Cyprus will be able to get financed on the markets again only after having put its public accounts in order and having implemented structural reforms. The government must review public spending, the pension system and provide adequate banking supervision.
