Roundup: Cyprus concerned over possible Grexit, monitors closely Greek developments

Cyprus, the Eurogroup country which is expected to be affected most by a Greek exit from the euro zone, says it is closely monitoring developments in Greece, following the Greek government's decision to call a referendum on July 5.

Government spokesman Nicos Christodoulides vainly concealed Cyprus's concern over a possible Grexit, saying that "the government ... is hoping against such a development."

He said that the decision to call a referendum on proposals by the Eurogroup which Greek Prime Minister Alexis Tsipras has rejected is a matter for the Greek government and people, but he called for Greece's stay in the euro zone.

"It is important that developments lead to a state of play, where Greece remains part of the euro zone. This would be beneficial for Europe, Greece and the Greek people," said Christodoulides.

Christodoulides dismissed as speculation press reports that Tsipras had informed Cypriot President Nicos Anastasiades about his intention to call either a referendum or early elections.

Cyprus maintains close ethnic, political, economic and defense ties with Greece and any radical changes will have a direct impact on the eastern Mediterranean island.

Despite the disengagement of the banking systems of the two countries after Cyprus was bailed out by the Eurogroup and the International Monetary Fund in March 2013, they maintain close commercial ties.

Cyprus was counting to a large extend on economic stability within the European Union to return to economic growth this year after 14 consecutive quarter of contraction.

The government spokesman said "all necessary measures have been taken, in order to avert any possible concerns about the Cypriot banking system and the local economy in general."

But economists are concerned that Cyprus will face a fallout in case of a major economic upheaval in Greece.

Its exports to Greece amount to about 17 percent of the total and imports from Greece are close to 23 percent, according to the latest statistical data.

"Cyprus stands to lose a considerable part of its exports to Greece if the country adopts its old currency (the drachma) which will be much cheaper than the euro," said economist and lawmaker Marios Mavrides.

He also said he expects losses in the tourism sector as a result or tourists traveling to Greece as a result of cheaper tourism packages instead of coming to Cyprus.

"A lot of Cypriots will travel to Greece instead of visiting local resorts. I can also foresee that a worsening of economic conditions in Greece would result in an influx of people from Greece seeking employment in Cyprus," said Mavrides.

Moody's ratings agency said in a report earlier this week that a Greek exit from the euro area could have negative consequences on Cypriot banks.

It said that although Cypriot banks hold insignificant direct exposures to Greece following the sale of their Greek operations in March 2013, a worsening of the situation there poses downside risks.

"A Greek exit from the euro area could have negative consequences on Cypriot banks' asset quality and performance because various Cypriot corporates have operations in Greece that could undermine the banks' efforts to improve their asset quality," Moody`s said. Endit