IN JUNE 2012 the Cypriot government asked for a bail-out after the two largest banks, stacked with Greek bonds, fell victim to the 2011 write-down of Greek debt. Seven months on, time is running out. The finance minister, Vassos Shiarly, says he has to find €1 billion a month to refinance loans and for other spending. Yet the bail-out could be blocked—or approved only with conditions that spark renewed alarm among investors.This week Jörg Asmussen, a European Central Bank board member, said the problems of Cyprus could be “systemic for the rest of the euro area”. Charles Dallara, head of the Washington-based Institute of International Finance, warned of “underestimating the potential contagion impact” coming from the island.The government says it needs €7.5 billion ($ 10 billion). But its banks also need more capital. A committee including Greek-Cypriot officials and the troika of the European Commission, the ECB and the IMF asked Pimco, a big American bond investor, to advise how much, and the provisional answer was €10.3 billion. But in Germany, especially, any idea of using taxpayers’ money to underwrite deposits in Greek-Cypriot banks meets stiff resistance. Last year Germany’s foreign intelligence service declared that the main beneficiaries would be Russian oligarchs, businessmen and mafios i….
The Economist: Europe