A financial assistance programme for Cyprus is not being discussed, the European Commission said today.
'The issue of financial assistance package is not on the table,' a Commission statement said, after Cyprus's largest lender, Bank of Cyprus said the country faced an imminent threat of entering an EU support mechanism which would damage the island's reputation as a financial centre.
The Commission statement noted that Cyprus has committed to bring its budget deficit below 4% of GDP in 2011 and to 2.5% in 2012.
'We are confident the Cypriot authorities will fulfil their commitments. And fully expect them to do what is necessary,' the Commission statement said. 'The Cypriot authorities can rely on the full support of the Commission in its effort to consolidate its finances and re-launch the economy,' it added.
Earlier, the Bank of Cyprus, the island's largest financial institution,urged government action to prevent the euro zone country from having to seeking a bailout from the European Union.
'With our inaction we are risking the ability of refinancing the state and the consequences will be instant and serious,' a statement from the commercial bank said. 'There is an immediate threat of the country entering the European Union's support mechanism with everything bad that entails,' it added.
State Central Bank governor Athanasios Orphanides warned last month that Cyprus could be headed for a bail-out following a massive munitions blast that claimed 13 lives and knocked out a key power plant on July 11.
'Time has run out. We are at that turning point at which history will judge us. It's time for immediate and effective action,' the Bank of Cyprus said today.
It added that political dithering and inaction was sending wrong signals to credit agencies and international markets that Cyprus does not have the necessary leadership to turn things around. 'Each day of inaction accelerates the problem and the risks, so we must act today and not tomorrow,' the bank said.
'Markets move rapidly; indecision, disagreements or simply talking without taking action are punished, while courageous decisions are rewarded,' it said.
The bank said bold decisions need to be taken to prevent a downward spiral and ensure long-term economic growth, otherwise the island's reputation as a regional financial centre would 'erode'.
Its plea comes after ratings agencies Moody's along with Standard and Poors last week downgraded Cyprus based on concerns over its economy and budget.
Since last month's deadly blast at the naval base, Cyprus has been in political and economic turmoil which last week saw the resignation of President Demetris Christofias's entire cabinet. He has yet to appoint a new government, meaning that essential austerity measures are delayed until he does so.
S&P said that between 2008 and 2010, the budgetary position shifted from a surplus of just under 1% of GDP to a deficit of 5.3%. The government had hoped to lower the deficit to below 4% this year and under the EU's 3% ceiling in 2012.
Official projections that the economy would grow by 1.5% this year and by 2.5% in 2012 have been scrapped after the explosion and destruction of the power plant. Preliminary estimates put GDP growth at 0% for this year and around 1% next year.
Estimates to rebuild the post-blast economy are put at a total of between €2-3 billion, with rebuilding the devastated Vassiliko power plant alone put at a minimum of €700m.
