0.6 C
January 28, 2023

EBRD: Cyprus woes threaten East Europe GDP

Another bout of uncertainty in Europe’s debt crisis may boost financing costs for banks and potentially trigger an outflow of “large” deposits, EBRD Deputy Chief Economist said.

Cyprus’s bailout threatens to slow eastern European growth through trade and banking links if it sparks capital flight from the most indebted euro-area nations, European Bank for Reconstruction and Development (EBRD) Deputy Chief Economist Jeromin Zettelmeyer said recently in an interview in London, Bloomberg informs, quoted by Mediafax.Another bout of uncertainty in Europe’s debt crisis may boost financing costs for banks and potentially trigger an outflow of “large” deposits and funding in countries with weaker lenders or sovereigns, EBRD Deputy Chief Economist said.Eastern Europe relied on foreign capital flows and easy access to credit and export markets to fuel growth of more than 5 percent a year before the global crisis of 2008. The Cyprus bailout, in which international creditors forced losses on large depositors in exchange for a 10 billion-euro aid package, may lead to capital flight and weaker growth in countries such as Italy and Spain, Zettelmeyer said.“These are very important countries and they are very large, and so if there’s a slowdown in the EU as a result of this it would certainly affect” the 29 eastern European and central Asian countries where the EBRD operates, he said.

“The risks are higher than we thought and they are further to the downside than what we thought.” The EBRD forecast in January that eastern European economic growth will pick up to 3 percent this year from 2.6 percent in 2012. It will update the projection in early May.Moreover, Russia has decided to restructure its multibillion euro loan to Cyprus to help the island nation resolve its financial crisis, President Vladimir Putin said on Monday, rianovosti.com informs. “We are making our own contribution [to resolving the Cyprus crisis]. Late in 2011 we granted Cyprus a government loan of 2.5 billion euros and at the request of the European Commission we have decided to restructure this debt.

This is our real contribution to resolving the Cyprus problem,” Putin said, without giving details of the debt restructuring. In talks between the Russian and Cypriot finance ministers in March, Cyprus requested a five-year loan extension and a cut in the loan rate from 4.5 percent to 2.5 percent, which was equivalent to writing down 10 percent of Cyprus’ debt. Russia does not expect the Cyprus bailout model offered by the troika of international creditors will be used to resolve the economic woes of other eurozone countries fighting with the sovereign debt and bank liquidity crises, Putin said.

Probe to cover Popular Bank

Cyprus’s central bank confirmed yesterday it will extend an inquiry into the banking crisis that has crippled the island to fully cover Cyprus Popular Bank, nationalized last year because of heavy losses from Greece, theglobeandmail.com informs. A central bank-commissioned probe leaked last week made reference to Popular’s purchase of Greek government bonds, while focusing on the island’s largest commercial bank, Bank of Cyprus. Central Bank of Cyprus Governor Panicos Demetriades told lawmakers on Monday the inquiry would move on to Popular and its Greek bond buys. “It is expected to be completed in the next few months,” he said.

Related posts

W.B.: Double-dip recession unlikely

Nine O' Clock

Garanti Bank and Garanti Mortgage, initiate official merger procedures

Nine O' Clock

610 exhibitors from 28 countries at TIB 2009