Less than three months have passed since the European Union, together with the International Monetary Fund (IMF), assembled a €10 billion ($13.4 billion) bailout package for Cyprus to prevent the country's banking system from collapsing. But Nicosia, according to reports in the Financial Times and the Wall Street Journal, already finds itself in need of additional help.
In a letter sent to euro-zone leaders last week, and obtained by both business dailies on Tuesday, Cypriot President Nicos Anastasiades says that the bailout package, which included the restructuring of the country's two largest banks, was "implemented without careful preparation" and that it has damaged the island nation's economy to a greater degree than expected.
"The economy is driven into a deep recession, leading to a further rise in unemployment and making fiscal consolidation all the more difficult," Anastasiades wrote, according to a passage quoted by the Financial Times. "I urge you to review the possibilities in order to determine a viable prospect for Cyprus and its people."
The Cyprus bailout was, if not the most expensive, certainly the most rancorous of the aid packages the euro zone has yet assembled for an ailing member state. A first deal, which called on all savers with deposits of €20,000 or more to participate in propping up the country's wobbly banks, was rejected by the government in Nicosia. It accepted a similar deal seven days later -- with only savers holding more than €100,000 in savings required to take part.
In addition to closing Cyprus' second-biggest bank, Laiki, and merging parts of it with the Bank of Cyprus, the country's largest financial institution, the deal also included a €13 billion package of austerity measures pledged by Nicosia. The EU aid package was to prevent the government from going bankrupt, with none of the money earmarked for the country's banks.
Brussels' bumbling in the lead up to that bailout package has been widely criticized. And Anastasiades' letter comes just weeks after the IMF itself also criticized the EU's bailout strategy , though its assessment focused specifically on the first Greek bailout, worth €110 billion. The IMF, however, has also noted the risks associated with the Cyprus bailout. In May, the institution noted in a staff report that the impact of the bank restructuring and consolidation plans were "highly uncertain" and that risks were "substantial and tilted to the downside."
Still, the Cypriot president's letter has left EU officials "puzzled," according to the Financial Times. He asks that the restructuring of Laiki and the Bank of Cyprus be partially undone, a request that would more or less mean the renegotiation of the entire package. "Essentially, he is asking for a complete reversal of the program," an unnamed EU official told the paper.