Cyprus' Rescue Conditional on Restructuring, Downsizing, Says Eurogroup

Update: Cyprus' bailout request to the EU will be conditional on restructuring and downsizing where necessary in its financial sector, in addition to continued fiscal consolidation in the public sector, said the Eurogroup in a statement.

The adjustment programme would include structural reforms to support competitiveness and sustainable and balanced growth. The financial assistance package shall be provided by the EFSF and a positive answer is expected from the IMF to Cyprus' request, said the Eurogroup.

The Troika will arrive in Cyprus next Monday to start negotiations and assessments.

The EU welcomes Cyprus' request in view of the distressed banking sector and macroeconomic imbalances.

"Based on a needs assessment, the euro area financial support would be provided in the framework of a comprehensive adjustment programme, building on the measures already taken by the Cypriot authorities," said the Eurogroup.

The programme will be negotiated by the Commission, in liaison with the ECB, with the Cypriot authorities and the IMF.

Earlier today, Bank of Cyprus said it needs 500 million euros from the state to reach its 1.56 billion euro recapitalisation target, without which it will fail European Central Bank (ECB) stress tests.

The announcement comes 48 hours after the government decided to ask the EU for a bailout of its own. BoC said that irrespective of its application for government funds, it "remains healthy with significant pre-provision profitability and significant Tier 1 capital."

BoC and Laiki lost billions on their exposure to the Greek debt writedown earlier this year, in which private sector companies agreed to cut the value of their Greek debt holdings by 50 percent.

Laiki Bank is in a more difficult position, as it needs 1.8 billion euros. Most of the recapitalisation funds are expected to come from the EFSF, in order to save the banking and financial sector.

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