The head of one of the biggest banks in Cyprus has warned that the country’s exposure to Greek debt has left its finances in such a mess that a bail-out is needed.
Michalis Salis, the chairman of Cyprus Popular Bank, has said that the financial sector is near collapse and a request for a cash injection in the next few weeks is inevitable.
Cyprus Popular Bank is the second largest lender in the country, but had to swallow a 76% write-off during the recent Greek restructuring. Mr Salis, who was formerly a finance minister and instrumental in helping the nation switch to the euro, admitted that the banking sector is in trouble and believes that the rescue fund will have to step in.
However, although the banking chief is resigned to the country’s fate, he believes that Cyprus must put together a cohesive plan, to avoid tough austerity measures being forced on them by the EU.
As it is not part of the single currency, Britain previously negotiated to be excluded from any financial responsibilities for bail-outs within the EU, although it would still be liable if the IMF stepped in. But the agreement to be excluded is not cast in stone and, in reality,, is no more than a polite agreement – and one which could be overturned by other countries within the union.
David Cameron will be hoping that the EU honour the agreement previously made and split the bill for bailing out Spain amongst the nations in the euro. It is anticipated that any subsequent request from Cyprus would also be met from the European Financial Stability Facility.
But should the other European nations cast a majority vote for Britain to pay a share, the UK could find itself forced to shell out a minimum of £20 billion, but potentially as much as £137 billion, to shore up a currency it is not part of.