NICOSIA (Reuters) - Cyprus, the fifth euro zone country to seek emergency funding from Europe, may need a bailout of up to 10 billion euros, over half the size of its economy, a European official said on Tuesday.
The Mediterranean island, with a banking sector heavily exposed to debt-crippled Greece, said on Monday it was formally applying for help from the European Union's rescue funds.
The source said that a package of up to 10 billion euros was being considered for the 17.3 billion euro economy.Cyprus joins Greece, Ireland, Portugal and Spain in seeking EU rescue to funds to try and stay afloat in a debt crisis that has also sent Italy's borrowing costs soaring.
Cyprus needs to plug a 1.8 billion euro regulatory capital shortfall in its second largest lender by June 30. Potential aid could be more comprehensive to cover fiscal requirements, Finance Minister Vassos Shiarly told Reuters.
Cypriot newspaper Phileleftheros reported on Tuesday that required funds were expected to exceed six billion euros, while the Politis daily said some suggestions put the bailout amount at up to 10 billion euros.
Either way, it would be a massive bill for Cyprus, the third smallest economy in the euro zone after Malta and Estonia.
Cyprus is thought to have applied to the EU for aid after exhausting attempts to secure loans from either China or Russia. Those efforts, however, will be ongoing.
"We will continue efforts to secure a bilateral loan, which can be used accordingly," government spokesman Stefanos Stefanou said.
Cyprus has been shut out of international capital markets for more than a year, with yields on its 10 year benchmark bond over 16 percent on Tuesday. Sidestepping EU aid earlier, it secured a 2.5 billion euro loan from Russia in late 2011.
The loan amount is expected to cover needs in 2012, but not in 2013, when Cyprus has 2.25 billion euros in refinancing, including a euro medium term note (EMTN) redemption.
President Demetris Christofias, whose administration has been slammed by opposition for dragging its feet in both applying to the EU and taking measures earlier to shore up the island's flagging economy, was to brief politicians later on Tuesday.
Christofias has been accused by the opposition of being out of touch with reality and ignoring warning signs that the economy was in trouble, suggestions the government strongly denies.
The bailout request comes as Cyprus prepares to assume the rotating EU presidency on July 1.
"It is a tragic coincidence," Cyprus Parliamentary speaker Yiannakis Omirou told state radio.
(Additional reporting by Gernot Heller; Editing by Paul Simao and Anna Willard)
