Cyprus bailout costs may reach over half of economy

European officials claim that a Cyprus bailout may reach 10 billion Euros which is over half the size of its annual GDP. Cyprus has officially requested aid from the EU.

One Euro zone official told Reuters news agency:“The exact number has not been decided yet. It was to be 6 billion for the state financing and 2 billion for the banks but that is optimistic – it is more likely to be seven and three – up to 10 billion euros in total," one euro zone official told Reuters.

To add to Cypriot woes the rating of Cyprus sovereign debt has been downgraded to junk status. The agencies said that the country will need up to 4 billion Euros to recapitalize its banks.

So far the Cypriot government itself has not said how much it will ask of the EU. This Thursday the EU leaders will discuss the issue at a meeting in Brussels. Spain has also asked for 100 billion Euros to support its banks.

Russia has already loaned Cyprus 2.5 billion Euros. For more see this article. For more than a year Cyprus has withdrawn from international capital markets. Interest on its ten year bonds are over 16 per cent!