New Cyprus Central Bank Governor Panicos Demetriades did not exclude the possibility for Cyprus to seek entry to the European bailout mechanism (European Financial Stability Facility – EFSF), in a bid to support the recapitalization efforts by Cyprus Popular Bank (CPB) following the Greek sovereign debt haircut.
Heavily exposed to Greek sovereign debt CPB, which posted record losses in 2011 following the write down of Greek bonds, needs to secure 1.97 billion euro to increase its Core Tier 1 capital to 9% as set out by the European Banking Authority. The Cypriot government decided to underwrite a 1.8 billion euro capital increase by CPB, a decision causing concern whether the island should seek entry in the EU bailout mechanism as Cyprus is excluded from international lending markets.
“We should not exclude anything,“ Demetriades said on Friday responding to a question following a meeting with main opposition party Democratic Rally President Nicos Anastasiades.
“Whatever happens it should be done for the benefit of the economy and for the benefit of the banking system,“ he added.
Noting he understands concerns that an entry to the EU bailout mechanism could lead to the alteration of Cyprus` tax regime, considered as one of the lowest in the EU, Demetriades pointed out that EU member-states such as Ireland received support from the EFSF without changing its tax regime.