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Forex Flash: Cyprus bailout amplified, 128% of GDP – Deutsche Bank

FXstreet.com (Barcelona) - Ahead of the Eurogroup meeting, Eurogroup President Dijsselbloem confirmed that the troika are discussing a possible extension to the Irish and Portuguese bailout programs. Confirming what Reuters reported on Tuesday, Dijsselbloem said the troika made a proposal for a seven-year extension, which he hopes will be finalized at Friday's Eurogroup meeting.

According to Macro Strategy Analysts J. Reid and C. Tan at Deutsche Bank, “Cyprus returned to the headlines after a government spokesperson confirmed on Thursday that the cost of its EU-IMF bailout has increased to €23bn from €17.5bn. Details on how the additional €6bn will be funded are not clear. The blowout comes as the projected fiscal needs of the state have increased as a result of the deeper-than-expected recession.”

With the increase in the size of the bailout, Cyprus will now be receiving a bailout that is larger than the size of its GDP. In 2012, Cyprus' GDP was just under €18bn, meaning the bailout is approximately 128% of GDP. We expect to hear more on this at the ECOFIN.

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