Euro zone crisis concerns grew deeper on Monday ahead of the EU summit at the end of this week. Adding to Europe’s woes was a request by another member of the single currency bloc for a bailout. Cyprus becomes the fifth euro zone member to require a bailout to handle a fallout from the Greek crisis as a result of the Cypriot banks large exposure to Greek debt.
Cyprus is the third smallest economy in the euro zone, and announces its need for a EU bailout after Spain formally applied for aid today. Cyprus has close ties with Greece and as a result needs to raise at least 1.8 billion euros, which is equivalent to about 10 percent of its domestic economic output, needed by the end of this week to recapitalise one of its major banks . The Cyprus Popular Bank has long been struggling due to its large holdings of Greek debt.
“The purpose of the required assistance is to contain the risks to the Cypriot economy, notably those arising from the negative spill over effects through its financial sector, due to its large exposure in the Greek economy,” a government announcement said.