Cyprus on Monday became the fifth eurozone country to request financial aid from its partners in the European currency union as it struggles to shore up its banks, which took heavy losses on Greek debt.
The island nation's government said in a terse statement that it required assistance following "negative spillover effects through its financial sector, due to its large exposure in the Greek economy."
Government spokesman Stefanos Stefanou wouldn't say how much Cyprus would ask from the European bailout fund, saying that the amount would be subject to negotiations in the coming days.
The 27 leaders of the European Union will meet in Brussels on Thursday.
Stefanou said that despite its demand for European aid, the Cypriot government would continue negotiations for a possible loan from a country outside the EU, such as Russia or China.
"One doesn't preclude the other," Stefanou told the Associated Press.
Fitch downgrades Cyprus
"Our efforts to secure a bilateral loan will continue." Cyprus is scrambling to find about €1.8 billion ($2.32 billion Cdn) — or about 10 percent of its gross domestic product — by a June 30 deadline to recapitalize its second largest lender, Cyprus Popular Bank.
The lender is the most heavily exposed of the country's banks to Greek government debt, which lost most of its value this year in a writedown.
Over the past weeks it became clear that the bank would not find the money from the private sector and would need to get it from the government, itself strapped for cash and unable to raise money in bond markets, where its borrowing rates are too high.
Cyprus, which has been surviving off a Russian loan so far this year, has been debating whether to ask for European aid or another loan from Russia or China — or a combination of both.
Earlier Monday, ratings agency Fitch became the third agency to downgrade Cyprus' credit rating to junk status, estimating that the island will need another €4 billion ($5 billion) to recapitalize its banking sector.
It cited the banks' exposure to Greek debt as well as a rise in bad loans over the last year as the Cypriot economy has shrunk and unemployment has risen to record levels.