The headquarters of BlackRock, which will make an internal analyss of the Cypriot banking system; photo: Daniel Acker/Bloomberg News
It is just a matter of days for Russia to lend between 4-5 billion euro to Cyprus, according to publications in the Greek press. There has been no official confirmation to date that the Russian government is ready to proceed with granting the money, but the articles’ authors state "all the signs indicate this."
Immediately after the approval of the Russian loan, the Cypriot government intends to seek aid from the European Financial Stability Facility and the requested amount may reach 8 billion euro.
The funds are expected to be used for the recapitalization of Cypriot banks holding a large number of Greek government bonds and to cover budgetary needs.
In the coming days, the government in Nicosia will announce austerity measures to reduce the budget deficit to 2.5%. As President Dimitris Christofias has promised, the specific measures do not include cuts in salaries and pensions. At the same time, however, reductions in the number of civil servants and tax increases have been planned.
Immediately after the announcement of the Greek election results, Cyprus's President called on Sunday the leaders of all parties except Golden Dawn and after expressing his concern about the fact that Cypriot banks are significantly exposed to the Greek debt, he urged them to form a government as soon as possible.
Shortly before Cyprus is to take over the rotating European Union presidency, the situation in the country seems to be particularly critical. However, the result of Greek elections has provided the government of Cyprus with the opportunity to take actions. The Central Bank of Cyprus is also considering its next steps.
The anticipated loan from Russia is expected to cover the financing of public needs. The island country hopes that its granting will be a trump in the hands of the cabinet against the imposition of hard terms and conditions by the European Financial Stability Facility.
At the same time, the Central Bank of Cyprus has triggered the procedures to make subsidiaries the branches of three Cypriot banks operating in Greece. This is expected to happen after the BlackRock agency makes an internal analysis of the banking system.