NICOSIA (Reuters) - Cyprus is keeping its options open on whether to apply for a European Union bailout to help recapitalize its second-largest bank but has yet to make any application, the government said on Tuesday.
“I want to be clear concerning various reports which suggest the Republic has decided to go to the (EU) mechanism, or that there have been contacts to this effect,” government spokesman Stefanos Stefanou said. “I have to say there is no such decision or any investigation of intent concerning admission to the mechanism.”
But he added: “The government has various options concerning the recapitalization of the banks and one of its options is to resort to the (EU bailout) mechanism.”
Cyprus had strongly hinted on Monday that it might have to apply for an international bailout before the end of this month as options dwindle for propping up its banks, which are highly exposed to Greece.
It must recapitalize its second-largest lender, Cyprus Popular Bank, by a June 30 regulatory deadline - one day before the country assumes the rotating EU presidency for six months.
Shut out of financial markets for a year and running deficits, Cyprus needs 1.8 billion euros ($2.2 billion) -equivalent to 10 percent of its gross domestic product - just to prop up Popular.
That figure would be more if Greece, to which Cyprus’s two largest banks are heavily exposed, were to exit the euro zone.
Late last year, Cyprus secured a 2.5 billion euro bilateral loan from Russia to help it refinance debt and plug deficits in 2012. Bilateral borrowing is another option, and persistent rumors suggest Cyprus has had contacts with China.
Russia’s name has also cropped up again as a potential lender in recent days. Sigma, a private TV station, reported on Tuesday that Cypriot President Demetris Christofias had paid an unannounced visit to the Russian embassy.
Government officials have declined to specify who their interlocutors are in these bilateral talks. Vassos Shiarly, Cyprus’s finance minister - who on Monday said any application for aid to the EU might be comprehensive, and not focused just on bank recapitalization - declined to comment to journalists on Tuesday, referring queries to the government spokesman.
Reporting by Michele Kambas; Editing by Ruth Pitchford and Catherine Evans