EU clears Cyprus bank guarantee scheme

(BRUSSELS) - The European Commission on Tuesday cleared a bank guarantee scheme in debt-stricken Cyprus as part of efforts to stabilise its financial sector up to the end of the year.

The scheme will ensure that the banks can get medium-term funding for loans up to five years, helping provide credit to the struggling economy.

The guarantee scheme "is an appropriate means of remedying a serious disturbance in the Cyprus economy," the Commission said in a statement.

It will help maintain "stability in the Cyprus financial sector without creating undue distortions of competition," it added.

Cyprus applied for a full EU bailout in June after its biggest lenders Cyprus Popular Bank and Bank of Cyprus could not meet new capital reserve limits owing to huge losses they booked on their exposure to bailed-out Greece.

Eurozone member Cyprus has the unenviable tag of being the first country to hold the six-month rotating EU presidency, which it assumed on July 1, while also negotiating EU emergency aid.

In September, the Commission approved on a temporary basis a bailout worth 1.8 billion euros ($2.30 billion) for Cyprus Popular Bank.