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Moody's downgrades Cyprus on Greek euro exit fears

Associated Press Modified: June 13, 2012 at 5:46 pm •  Published: June 13, 2012

NICOSIA, Cyprus (AP) — Moody's credit ratings agency on Wednesday drove Cyprus deeper into junk status with a two-notch downgrade to Ba3 over an increased likelihood that debt-crushed Greece will leave the eurozone.

Moody's said in a statement that it has placed Cyprus' rating on review for further possible downgrade.

It says that a Greek euro exit would likely raise the amount of money that the government may need to support its heavily Greece-exposed banking sector.

The agency said the two-notch downgrade also reflects the fact that the Cyprus' finances are already strained and that it can't borrow from international markets.

The downgrade comes as an added blow to the eurozone country as it seeks €1.8 billion ($2.6 billion) to help recapitalize its second-largest lender, Cyprus Popular Bank, which is most heavily exposed to Greek debt.

Cyprus' finance minister suggested on Wednesday that the government could seek a European Union bailout to support the bank before crucial elections in Greece this Sunday which are seen as a vote on whether the country stays or leaves the eurozone. Vassos Shiarly said a loan from another country was also an option.

Greece is holding the June 17 repeat election following an inconclusive May 6 ballot in which voters turned to smaller, mainly anti-bailout groups that have promised to renege on Greece's austerity commitments that were made in exchange for international bailout money.

Moody's said it now believes that Cyprus will need more money to support its banks than its earlier estimate, equivalent to 5-10 percent of the country's gross domestic product. It said recapitalization costs would now increase the country's debt levels by just over 10 percent of GDP.

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