Reuters: US Dollar Report: UPDATE 1-Cyprus president "can't exclude" bailout

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UPDATE 1-Cyprus president "can't exclude" bailout Jun 1st 2012, 17:05 Fri Jun 1, 2012 1:05pm EDT * Cyprus cant rule out external support for Greek-ravaged bank * Island has been shut out of markets for a year NICOSIA, June 1 (Reuters) - Cypriot President Demetris Christofias said on Friday he could not rule out that Cyprus might have to enter a financial support mechanism because of the exposure of its banks to debt-crippled Greece, but that it was not a foregone conclusion. Economists and some officials on the Mediterranean island have been warning for months that it might be the latest euro zone member to need support due to problems with banking and the costs of an explosion that knocked out its main power plant last year. Cypriot banks have been hit heavily by exposure to debt-crippled Greece and its second-largest lender, Cyprus Popular, faces the prospect of nationalisation if it does not find new investors by a mid-year deadline. Asked whether bailing out the bank could in itself force the euro zone's third smallest economy to seek support, Christofias said: "I don't take as a given that we will negotiate entry to a support mechanism, I don't want to absolutely exclude it." The island has been shut out of international financial markets for more than a year. It has limited sources of funding and Cyprus Popular would need around 1.8 billion recapitalisation requirement, almost 10 percent of Cypriot GDP. That bill will likely rise if Greece leaves the euro zone given the massive exposure of Cypriot banks to Greece. Christofias said technocrats were asked to look at contingency planning to "deal with a chaotic situation" if Greece does leave the euro zone. "It is something i hope will never happen," he said. Government officials say external bilateral lending -- Cyprus acquired a 2.5 billion euro loan from Russia last year -- is among the options. Christofias implied that any help from EU partners would focus on the banking sector itself. "There are support mechanisms and support mechanisms. There is a support mechanism for banks, which does not imply what happened to Greece," he said, referring to stringent austerity measures imposed on the neighbouring country. "We are fighting so we do not need a support mechanism for banks," he said. Link this Share this Digg this Email Reprints

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