Greek Fire, Part 58

What a difference a week makes when I said last Monday that the biggest risk of another bailout was Greece right now. It seems there's a late dark horse entry in the EU Bailout Race that might beat both Spain and Portugal to the line to join Ireland, Greece and Italy:  tiny Cyprus is reportedly very close to having to officially petition the EU for money before the end of the month.

Cyprus looks increasingly likely to have to ask for EU bailout money to help rescue its troubled banking sector, the island's Central Bank governor has said.

Panicos Demetriades said that Cyprus, which is part of the 17-country eurozone, is struggling to find €1.8 billion ($2.23 billion) to inject in the second-largest lender, Cyprus Popular Bank, by a June 30 deadline.

"Clearly, the closer you get to the deadline, the less unlikely (asking for EU bailout money) becomes," Demetriades told the Financial Times in an interview.

The bank is the most exposed to Greek debt and suffered huge losses after writing down the value of its Greek government bond holdings.

The government last month underwrote a €1.8 billion equity issue to help the bank raise capital from private investors, meaning it will have to put up the cash itself — an amount equal to a tenth of the island's entire economy — if the bank can't find the money.

However, state coffers are running dry because Cyprus is unable to borrow from international markets after two of the world's top three credit ratings agencies downgraded the island's creditworthiness to junk status. Cyprus is relying on a Russian loan just to pay its bills this year.

And yes, the little island that could ran headlong into the unquenchable flames of the Greek Fire and has been burned badly.   With a much smaller economy and only a few banks, Cyprus is facing a rocket sled to the bottom here and doesn't have a whole lot of options considering how deep the the country is in Greek debt...and Russian loan payments.  The country is all but junked in the bond ratings and can't get anyone but Putin's boys to loan them the cash they need.  An EU bailout HAS to be better terms then to have Igor and Vlad knocking at your door with a torque wrench.

It's been lost in the news with Greece all but falling apart right now, but if Cyprus makes the call, you'd better believe everyone will be watching to see what kind of deal they get with Spain and Portugal next in line.

We'll see.