DAVOS, January 28 (RIA Novosti) – Debt-laden Cyprus, which has yet to secure bailout funds from international creditors, may spark a new flare-up of the debt crisis in Europe, Russia’s former finance minister Alexei Kudrin warned on Monday.
“The Cyprus problem is becoming very acute. Greece has been bailed out, but no one wants to rescue Cyprus. Cyprus could trigger an expansion of the debt crisis,” Kudrin said on the sidelines of the World Economic Forum at Davos.
Cyprus officially applied to the European Union and the IMF for financial aid in mid-2012 in the hope of shoring up its banking sector, which had been battered by the eurozone sovereign debt crisis as local banks had to write-down billions of euros in “voluntary” Greek debt restructuring.
The Cyprus government, whose debt is now junk-rated by all three major rating agencies, cannot raise funds in international capital markets to cover its financing needs.
The island nation has failed to reach agreement with creditors either on the amount of cash needed or the austerity measures it should enact.
Kudrin said that Russia should not grant Cyprus any more aid until the EU and IMF approve a bailout package pegged to austerity measures.
Many countries view Cyprus as a refuge for Russian capital, and therefore feel that Russia should make a key contribution to rescue it, Kudrin said.
“If the IMF and the EU want to deliver a bailout package, which Russia views as adequate, that will help solve [Cyprus’s] problems, then Russia can participate in this package,” Kudrin said, stressing the limits on Russia’s potential involvement, “without assuming the leading role or trying to provide substantial support.”
Kudrin also warned that Greece, Spain or Portugal could quit the European monetary union in the foreseeable future.
The European Central Bank has launched a sovereign bond purchase program targeting problem eurozone countries, aiming to reduce bond yields and prevent sovereign defaults. Kudrin said this has gone some way to calming markets, but noted that this merely masked the problem without providing a solution.
Kudrin reiterated the ongoing threat Europe’s economy faces, “the crisis is continuing and imbalances have not been resolved. Europe’s debt is not decreasing and is only rising… The acuteness of the debt growth problem will only intensify. We may see the aggravation of the global crisis even at the end of this year or even in 18 months,” he said.