Cyprus becomes fifth eurozone state to seek bailout


MADRID (AFP) ― Spain formally requested Monday a banking rescue of up to 100 billion euros ($125 billion) and Cyprus also asked for a bailout, as a pivotal week for the eurozone’s future began.

With EU leaders under mounting pressure to take steps to deepen integration to finally get to grips with the debt crisis at a two-day summit beginning on Thursday, Cyprus becomes the fifth out of the bloc’s 17 members to seek assistance.

There was increasing uncertainty about the new Greek government, with the incoming finance minister resigning over health reasons and Prime Minister Antonis Samaras recovering from a detached retina, with a review of its bailout program delayed.

Spain’s request provided no exact figure for the aid to be delivered to its banks, which are hobbled by huge, reckless loans that turned sour after a property bubble imploded in 2008.

Though a formality, it came at a key moment in the eurozone crisis after debt markets sent Spanish and Italian borrowing rates spiraling and raised concerns for the future of the currency union itself.

A full-blown bailout for Spain, the fourth-largest economy in the eurozone, would dwarf the rescues of Ireland, Greece and Portugal and strain the resources of the bloc to the limit.

“Whether Spain will also need full-fledged financial support beyond the bank program will depend on its ability to retain market access,” said Antonio Garcia Pascual, analyst at Barclays Research.

“This in turn depends on both Spain’s policy commitments and, to a greater extent, on the speed with which Europe’s decisions evolve towards greater financial and fiscal integration in the coming days and weeks.”

European Union leaders are set to consider deepening economic and monetary union when they meet on Thursday and Friday to finally overcome the debt crisis that has wracked the eurozone for two years.

Markets were skeptical however that European leaders would overcome their differences to take significant steps.

London stocks fell 1.14 percent, Frankfurt dropped 2.09 percent, Paris sank 2.24 percent, Milan tumbled 4.02 percent, Madrid plunged 3.67 percent and Athens tanked 6.84 percent.

Prime Minister Mariano Rajoy urged the summit to set a schedule to gradually advance towards integration.

“The political message must be forceful and the integration timetable clear so as to restore confidence in the stability of the euro,” he said, renewing his call for the creation of a eurozone budget authority.

European leaders also face demands from Greece’s new three-party coalition government for new terms on its bailout, including a two-year deadline extension on reforms.

But German Chancellor Angela Merkel’s spokesman Steffen Seibert warned that no decision would be taken until an international team of auditors had assessed the state of Greece’s economy.

Auditors from the European Union, IMF and European Central Bank postponed a visit to Greece originally set to begin Monday due to the health problems of Greek leaders. No new date has been set.

Prime Minister Antonis Samaras was released from hospital Monday, two days after surgery for a detached retina and has been told to stay at home for at least a week to recover.

Meanwhile incoming finance minister Vassilis Rapanos, who had been hospitalized with stomach pain, in the end declined the post.

Cyprus also finally requested help from its eurozone partners, although it did not specify the amount but local media speculated it would be in the region of five billion euros.

It was not clear whether the help was for its banks or a general government bailout, but the Cyprus government has previously said it was looking at European financial support to help its banking system recapitalize after the writedown of Greek government bonds.

“The purpose of the required assistance is to contain the risks to the Cypriot economy, notably those arising from the negative spillover effects on its financial sector, due to its large exposure to the Greek economy,” the statement said.

The news comes as Cyprus readies to take on the European Union’s six-month rotating presidency on July 1.

There has been no decision yet on the Spanish loan amount, though eurozone finance ministers have offered up to 100 billion euros, and consultants hired by Madrid estimated that the banks need up to 62 billion euros in capital.

Spain’s banking distress will be the focus of a meeting of eurozone finance ministers on July 9.