Cyprus could need bailout

EUROPE could be forced to fork out for a fourth bailout after Moody’s downgraded Cyprus to just above junk status yesterday, alerting markets to the nation’s precarious fiscal position.

The agency cited a trio of disasters to hit the €17.4bn economy in the last quarter, including the accidental destruction of the Vasilikos power plant that fulfills around half of the nation’s energy needs.

Moody’s said that the accident will tip the economy into stagnation, forecasting zero per cent growth this year, and will add to an “increasingly fractious domestic political climate” that could derail its deficit reduction plan.

And Cypriot banks could require state aid, Moody’s warned, due to their exposure to Greek sovereign debt. Cypriot banks have accrued assets equal to six times the country’s GDP, the agency warned, amplifying the effect of any risks they face.

The risk from Greece was underscored by yet another downgrade, this time from Standard & Poors, which said that a default was “likely”. The agency later released a report suggesting it will view private-sector involvement in a new Greek bailout as a default.

Yields on 10-year Cypriot bonds reached 9.5 per cent, versus 8.5 per cent a week ago.