Cyprus is in the midst of a political crisis, as well as an energy and economic one. This morning, President Dimitris Christofias called on incumbent government ministers to step down en bloc. The defense minister and the army chief had already resigned on July 11, now, under the pressure of popular protests, the entire council of ministers is resigning. Instead, the president remains in office in order to form a new centre-left executive: “The people elected me, and it is to the people that I am accountable. Not to the media,” he told reporters.
Two weeks ago, the explosion of the ammunition depot inside the Evangelos Florakis barracks, on the southern coast of the island, damaged the country's main power plant, killing 12 people. An investigation is underway into the matter, however it will certainly not be necessary to wait for the outcome to measure its impact on the national economy, which is already very clear today: the cost of the damage from the explosion and the consequent energy cuts is estimated between 1 and 3 billion euros, equivalent to 17% of Cyprus' GDP. Domestic bond yields surged to 9,5% on 1-year bonds following the incident, and yesterday's news was that Moody's downgraded Cyprus' credit rating two notches to BaaXNUMX, just three notches above the indication of “garbage” titles.
Last week, the governor of the Cypriot central bank and ECB adviser, Athanasios Orphanides, said that without immediate action the country could be the next, after Greece, Ireland and Portugal, to ask for financial aid from monetary union. The government spokesman is not sure: “At the moment, Cyprus is able to meet its financial needs until the end of the year. So it is not obvious that Cyprus should be admitted to a support programme".
