The European Commission said Monday it remained ”confident” that Cyprus can avoid calling in a eurozone bailout, but only if it implements a host of reforms already deemed well off-target.
”The Commission is in close contact with Cyprus as with many other countries in the euro area,” said senior economy spokesman Olivier Bailly. ”We are indeed confident that Cyprus can overcome the current challenges provided it implements the reforms we set out last week.” Bailly was responding to reporters after central bank governor Panicos Demetriades told the Financial Times that Cyprus, a recession-hit eurozone economy, was nearing an EU bailout request to deal with the impact of the Greek crisis on its own banking system.

Demetriades acknowledged that with an end-June deadline to find at least 1.8 billion euros ($2.3 billion) to recapitalise Cyprus Popular Bank, the country was at ”an important crunch time.” Cyprus news agency CNA reported on Monday that Communist President Demetris Christofias has not ruled out turning to a new eurozone firewall set to enter service on July 1, the 800-billion-euro European Stability Mechanism.

Last week, releasing detailed annual recommendations for economic and public finance management for all 27 EU states, the Commission said Cyprus was facing ”multi-dimensional challenges.” ”The banking sector suffers from a large exposure to Greece, in terms of both the private sector and the sovereign, and needs to raise fresh capital,” Rehn’s report said.
Neither the Cyprus government nor its commercial banks have been able to borrow from international money markets since June 2011, it said.

Having implemented previous recommendations under excessive deficit procedures ”only partially,” it said Cyprus must fix public finances, recapitalise its banks, reform its labour and services markets, education policy, pension and healthcare systems and the energy sector.