* Relief palpable among Cyprus officials
* Greek ejection from euro would have been disaster
* Cyprus still must find 1.8 bln euros by month's end
By Michele Kambas and Peter Graff
NICOSIA, June 17 Greece's election has pulled
its smaller neighbour Cyprus back from the precipice - for now -
but Nicosia still has urgent work to do to rescue its banking
sector if it is to avoid becoming the next casualty of the euro
The relief of Cyprus officials was palpable on Sunday night
as results came in from Athens showing conservative Antonis
Samaras had won Sunday's vote promising to stick to a European
bailout, although the government did not immediately comment.
Cyprus, a small country with just a million people but a big
offshore financial industry, still faces a European bank
regulator deadline in just two weeks to find 1.8 billion euros -
around a 10th of its GDP - to bail out its second largest
But that is just a fraction of the damage that would have
been done to Cypriot banks if Samaras had lost to leftist Alexis
Tsipras, who threatened to toss out the bailout, and European
leaders had responded by cutting off Greece's funding.
"Not Armageddon just yet. Armageddon put off for another
day," said Fiona Mullen, a Nicosia-based economist for the
consultancy firm Sapienta, who estimates Cyprus would need 10
billion euros or more if Greece were pushed out of the euro.
"I was worried last week that Cyprus had left it too late to
go to the European stability mechanism to cover itself - not
only for a bank bailout but for a Greek exit. It seems to have
got a bit lucky."
She said the sigh of relief would be shared even by the
government of President Demetris Christofias, the EU's only
Communist leader, who is closer politically to Tsipras than to
Samaras's New Democracy conservatives.
Christofias supports easing the harsh austerity terms
imposed on Athens in return for its bailout, but needs Greece to
have a government that can work with Brussels to keep aid
"TOO MUCH AT STAKE"
"What is important for us is that there is a stable
government. There is too much at stake for any uncertainty,"
lawmaker Pambos Papageorgiou, of Christofias's ruling AKEL
Communist party, told Reuters.
"New Democracy appears to have won, but there is a clear
message from the electorate that they want to stay in the euro
zone but be able to have a chance to recover as an economy," he
"It depends very much how the euro zone reacts to the
result: if they are willing to talk to the new government and
make the austerity programme a bit more viable, and also change
some of the lending terms (for Greece)," he added.
For its own part, Cyprus must still find the 1.8 billion
euros by the end of this month to bail out Cyprus Popular Bank
, which saw its balance sheet damaged in March when
private-sector lenders wrote off most Greek government debt.
Nicosia has said it is trying to arrange a bilateral loan,
possibly from Russia, which lent it 2.5 billion euros last year.
It could also get the funding from the European Financial
Stability Fund, the EU's rescue mechanism, but Christofias wants
to avoid funds that come with too many fiscal and regulatory
Stelios Platis, who runs a financial consultancy firm in
Cyprus, said the Greek result would buy Nicosia time, but not
necessarily much. Cyprus still needs to find a way to reduce the
massive exposure to Greek debt on the books of its banks.
"I think Cyprus is buying some valuable time, during which
it has to insulate itself from any shocks arising from Greece,
mainly to dissociate its banking sector from its Greek
operations," he said.
"I wouldn't be too fast in drawing conclusions. Greece is
not out of the woods yet," he said. "I think it does buy Cyprus
a few months."