Cyprus Approached Russia, but ‘Prefers’ EU Loan: Minister

Troubled Cyprus, the small island affected by its closeness to Greece, has approached Russia for a loan, but its preferred option would be borrowing from Europe, the island’s finance minister told CNBC Friday.

Euro coins
Euro coins

A loan from bailout fund the European Financial Stability Facility (EFSF) , which would make Cyprus the fifth country to get a bailout from the fund, is “preferable” Vassos Shiarly, finance minister of Cyprus, told CNBC before the meeting of European finance ministers on Friday.

The possibility of a loan from Russia had alarmed some policymakers. Cyprus is the only European Union country with a Communist government.

Cyprus’s financial system is closely linked to neighbor Greece, and Greece’s troubles have dragged Cyprus into troubled water, too. The small island is facing a 1.8 billion euros ($2.6 billion) — around a 10th of its gross domestic product — bill for bailing out Cyprus Popular Bank, its second-largest bank, and needs to decide on how it will pay this within weeks.

“We’re looking at the options right now. It’s not a question of preference, but of options. The more options we have, the better it is,” Shiarly said.

Conservative New Democracy’s win in the Greek elections on Sunday was seen as a relief for the troubled island.

“There was definitely a sigh of relief yesterday at the Eurogroup meeting,” Shiarly said. “Now we have to get down to the real business … Everybody’s feeling much better this time.”

The island will assume the European Union presidency in July, which would make it the first bailed-out EU country to take the presidency, if it has to ask for a bailout.

“It’s quite a challenge for little Cyprus to have the presidency. A lot of preparation has been done and we are inheriting a number of issues from the Danish presidency, we’re working very closely with them, and I believe we will get a result,” Shiarly said.

He also pointed out that Cyprus had had some “good news” through the discovery of natural gas in its territory recently.

—By CNBC’s Catherine Boyle and Silvia Wadhwa. Twitter: @catboyle01