Cyprus seeks a bailout
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LONDON -- The eurozone's sovereign debt crisis took a turn for the worse Monday, as Cyprus said it would seek aid from the eurozone's bailout funds.
"The purpose of the required assistance is to contain the risks to the Cypriot economy, notably those arising from the negative spillover effects through its financial sector, due to its large exposure in the Greek economy," the government said in a statement.
Earlier in the day, the ratings agency Fitch downgraded the island nation's government debt to junk status. Cyprus last year received a three-year, 2.5 billion euro loan from Russia.
Greece, Portugal and Ireland have already received bailouts.
In addition, the new Greek finance minister, Vassilis Rapanos, tendered his resignation Monday. Mr. Rapanos was hospitalized Friday after being treated for intense abdominal pain, nausea, sweating and dizziness.
Greece's new prime minister, Antonis Samaras, also will miss a crucial summit meeting of European Union leaders scheduled for Thursday and Friday in Brussels. Mr. Samaras left the hospital Monday and is recovering from eye surgery. Greece will be represented by a ministerial delegation at the summit meeting, where EU officials are expected to debate relaxing the terms of Greece's bailout.
Even before Cyprus made its request for a bailout, stock markets plunged in Europe, and the euro dropped, amid doubts that EU leaders will achieve the far-reaching breakthrough needed to resolve the debt crisis.
"This will be a decisive week for Europe," German Foreign Minister Guido Westerwelle said Monday at a meeting of EU foreign ministers in Luxembourg.
On Monday, Spain made a formal request for as much as 100 billion euros, or $124 billion, in aid for its banks, but how the money is to be disbursed is still the subject of negotiation. The Spanish government wants the aid to go directly from European bailout funds to the banks. Eurozone rules now require that the aid be funneled through the government in Madrid, which would add to Spain's sovereign debt.
European leaders may discuss whether to change those rules at their summit meeting in Brussels at the end of the week, at which they also will debate plans to create an EU banking union, including a system to wind up insolvent banks and establishment of a central deposit guarantee fund. In addition, the European Central Bank would have a bigger supervisory role.
Officials say these measures would not require changes to the EU treaty, but they could not be operational until 2013 at the earliest. Bringing about even deeper integration would take longer.
"It is a starting point; it is not an end game," said a European official who spoke on condition of anonymity because of the discussions' sensitivity. "We are not going to wake up on June 30 and find there is a banking union, a fiscal union and a political union."
First Published June 26, 2012 12:00 am