Cyprus has become the fifth euro zone nation to seek a bailout from the European Union and IMF as the debt crisis in the single currency bloc loomed to escalate ahead of a crucial EU summit at the weekend.

Jean-Claude Juncker, President of the euro group, last night said that he received a formal request for financial assistance from the Mediterranean island nation just days before it takes over the half-year presidency of the European Council of Ministers.

The euro group will swiftly examine the request and convey its response to the Cypriot authorities, Juncker said.

The euro group is also expected to give a mandate to the European Commission and to the European Central Bank (ECB) “to negotiate the necessary policy conditionality, which shall accompany the financial assistance,” he said in a statement.

This will include measures that will address the main challenges of Cyprus economy, primarily those of the financial sector.

Mr. Juncker said he expected that Cyprus will “engage with strong determination in the required policy actions.”

Cyprus was widely expected to seek a bailout by the EU and the IMF to prop up its banking sector, crippled by its heavy exposure to the Greek government debts and by the losses on loans given to Greek banks and businesses.

According to some estimates, Cyprus might need between 5 billion euros and 10 billion euros to recapitalise its banks.

The final push for a bailout came from the rating agency Fitch, which on Monday joined its rivals Moody’s and Standard & Poor’s to downgrade Cyprus’ credit rating to junk status, making it more difficult for the country to raise funds from the capital markets.

The Cypriot government said in an official announcement in Nicosia that it made a formal request to its euro zone partners for financial assistance from the 17-nation group’s temporary bailout fund, the European Financial Stability Facility (EFSF).

“The purpose of the required assistance is to contain the risks to the Cypriot economy, notably those arising from the negative spill—over effects through its financial sector, due to its large exposure to the Greek economy,” it said in a statement.

The announcement came as the EU leaders prepared to hold a two-day summit in Brussels on Thursday and Friday to work out new strategies to solve the two-year-old euro zone sovereign debt crisis, which is threatening to engulf Spain, the euro area’s fourth largest economy.

After the Spanish government yesterday made a formal request for EU support to recapitalise its debt-stricken banks, there is concern that the Spanish state may be next in line to receive a bailout.

Two independent audits of Spanish banks estimated that up to 62 billion euros will be needed to stabilise them.

The euro zone had already offered a rescue loan of 100 billion euros to shore up the banks.

Unlike Greece, Ireland and Portugal, which received the EU/IMF bailouts during the last two years, Spain will not have to implement unpopular austerity measures as the rescue loan is restricted to the banking sector.

Mr. Juncker confirmed that he had received a formal application for financial assistance from the Spanish government.

The European Commission and the ECB will soon start negotiations with the Spanish government on the terms and conditions of the bailout, including restructuring plans.

The IMF will provide technical assistance and regular assistance, he said in a statement.

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