Cypriot economic trouble rooted in Greek woes

Cyprus President Demetris Christofias on Sunday blamed the island's economic troubles on neighbouring Greece's woes and insisted that reforms by his government would check a growing public deficit. "The economy of Cyprus continues to have healthy foundations despite the problems, distortions and inequalities accumulated over the years," the Communist politician told To Vima weekly in an interview. Cyprus takes over the European Union's rotating presidency on July 1. Estimates are that it needs around 4.0 billion euros to prop up its banks and help narrow the budget deficit, which widened last year to double the EU ceiling of three percent of gross domestic product (GDP). "Cyprus is not facing the prospect of entering (a rescue) mechanism because of the fiscal state of the economy but because of the need to recapitalise Cypriot banks which have important exposure to the Greek economy," Christofias said. "In every downgrade of the Cypriot economy the exposure of our banks to Greece is portrayed as the main cause," he said. Christofias said reforms already undertaken would bring the deficit to "around 3.0 percent" from 6.5 percent in 2011, with the aim of trimming it further to "as close to 2.5 percent as possible." Cyprus will ask Russia for a loan of up to 5.0 billion euros ($6.4 billion) this week and then request aid from eurozone partners for its ailing banks, an EU diplomat said Wednesday. The crisis-hit Mediterranean island will "first try to get a bilateral loan from Russia," said the diplomat, speaking on condition of anonymity. Cyprus would then probably request eurozone aid for its banks next week along the lines of an offer made to Spain, he said. The government is already committed to underwriting a 1.8 billion euro capital issue for the island's worst exposed institution -- Marfin Popular Bank -- to recapitalise against the Greek debt crisis.