Cyprus pays bigger price for bailout

April 11, 2013: 12:47 PM ET
cyprus bank bailout
At the time of the bailout, conditions in Cyprus were worse than believed - so the country will have to pay more for its portion of the international rescue.
LONDON (CNNMoney)

The cost to Cyprus of its international bailout has gone up by six billion euros.

To receive 10 billion euros in emergency rescue loans from the European Union and International Monetary Fund, Cyprus will now have to find 13 billion euros from its own resources over the next three years, compared with about seven billion just weeks ago.

Christos Stylianides, a Cyprus government spokesman, told CNN that the original figures were based on calculations made by the previous government in December 2012 that were no longer valid because the economy has since gotten worse.

Cyprus agreed last month to close one of its biggest banks and raid deposits of more than 100,000 euros at another to raise the bulk of its contribution to the bailout, without which it faced financial collapse and possible exit from the euro.

It kept banks shut for nearly two weeks while it negotiated the deal with the EU to prevent a massive flight of cash from the country, and in an unprecedented move for the eurozone, imposed strict limits on withdrawals and transactions when they reopened at the end of March.

At 23 billion euros, the total cost of the bailout will exceed the size of Cyprus' economy, which was brought to its knees by losses sustained by its bloated banking sector on investments in Greek government debt and loans to local businesses.

Some economists believe Cyprus may be forced to seek a second bailout given the challenge of raising such large sums at a time when the economy will be contracting rapidly.

Related: Cyprus finance minister resigns

The government has already committed to raising taxes on companies and capital gains as part of the rescue, and will also try to raise money by selling state assets.

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Some reports suggest the country's central bank will sell gold reserves worth about 400 million euros as part of the effort to prevent the country's debt soaring to unsustainable levels.

Stylianides declined to comment on how Cyprus would raise the extra cash.

EU officials did not specify the size of Cyprus' contribution when the bailout was agreed. Russia may be able to help by extending the term or reducing the interest rate on an existing 2.5 billion euro loan.

Details of the program will be discussed by EU finance ministers at a meeting in Dublin starting Friday, but no decisions are expected and formal sign-off is likely later in the month.

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