Tough times in Cyprus threaten to reignite the euro crisis

The Mediterranean island nation of Cyprus, which will hold a run-off vote today to determine its next government, has the potential to reignite the euro crisis all on its own - even though the EU aid it has requested is negligible compared with the massive bailouts devoted to shielding the single currency since 2010.

Cyprus applied for financial help of €17 billion (Dh82.45bn) last year after its banks suffered huge losses from Greece's sovereign debt restructuring. The aid it seeks roughly equals its annual GDP.

But a number of EU nations, especially Germany, have baulked at bailing out Cyprus because they say it has become a haven for dirty money from Russia, whose oligarchs would be the main beneficiaries of any rescue.

The German finance minister Wolfgang Schäuble has taken a hard line, suggesting that Cyprus was not "systemically relevant" because it is so small, which was seen as a threat to withhold assistance. Mr Schäuble's comment drew a sharp rebuke from the president of the European Central Bank, Mario Draghi, who insists that a Cypriot default could threaten the wider euro zone.

The island's Conservative leader, Nicos Anastasiades, who supports a swift deal with EU and IMF lenders on a bailout to avert a bankruptcy, won last Sunday's first round of the election but failed to avoid a run-off. He faces today the communist-backed Stavros Malas, who campaigned on a pro-bailout but anti-austerity platform.

Cyprus needs foreign assistance to recapitalise the banks and finance the government for the next three years, and its government has denied the money laundering accusations and insists that it has been complying with EU rules. But Brussels hopes that the new government will give a commitment to more reforms and pave the way for an aid deal in March.

The ECB board member Jörg Asmussen said last week that he hoped a financial rescue agreement that would include privatisations could be reached by the end of March.