* Troika discussions to conclude by end-July; Banks ravaged by Greek exposure *
Cyprus said on Wednesday it expected to conclude financial aid talks with its EU partners over the next three weeks, urging its would-be creditors to be lenient on it after being shocked by Greece's bailout experience.
The Mediterranean state became the fifth euro zone country to apply for a financial lifeline from European Union support funds on June 25, telling of a debt crisis which has engulfed and threatens to smother the continent.
Cyprus's immediate financial woes stem from the heavy exposure of its oversized banking sector to debt-crippled Greece. The bailout cost just from banking could be 10 billion euros, Cyprus's Phileleftheros newspaper reported.
Technocrats from the European Commission, the ECB and the IMF, known as the 'troika' started assessing Cyprus's economy on Tuesday.
Viewed with deep suspicion by the Cypriot public because of the painful experience of Greece, they were promptly reminded by Cypriot officials on Wednesday to be very mindful of local sensitivities in any recommendations they would produce.
"Cyprus's problems are focused mainly on the banking sector and it is there where they are placing particular emphasis," said Finance Minister Vassos Shiarly, who met officials from the so-called "troika" on Wednesday.
He declined to speculate on any bailout amount, saying figures had not been discussed at all.
The newspaper's 10 billion figure is in line with initial estimates of the total cost of rescuing the island's economy. If confirmed, it would thus represent a sharp jump in even pessimistic estimates of how much fresh cash the banks alone would need.
It would also raise issues of debt sustainability, given Cyprus' annual economic output stands at just 17.3 billion euro GDP.
The Central Bank declined to comment, describing any figures mentioned in the press as "purely speculative".
Cyprus's two major banks booked substantial losses from writedowns in the value of holdings of Greek sovereign debt, taking a 4 billion euro combined hit.
Cyprus Popular has now been effectively nationalised with a 1.79 billion euro recapitalisation from the state, and Bank of Cyprus has requested 500 million euros in state aid.
DON'T ROCK BOAT
The troika's team of some 30 economists were to conclude their fact-finding mission on Friday, and return sometime around July 16 with recommendations. The aim of the exercise was to have concluded negotiations within the month, Shiarly said.
Cyprus, shut out of international capital markets because of double-digit yields on its traded debt for the past 14 months, resisted seeking aid from its EU partners sooner and took a 2.5 billion bilateral loan from Russia late last year.
Russia says it never received a request for a new loan from Nicosia, even though Cypriot officials say otherwise.
Now Cyprus has to negotiate a tightrope of possible austerity or reform unlikely to go down well in a country facing a general election in seven months.
The troika were gently reminded of that on Wednesday.
"We have highlighted the need that they be particularly careful concerning issues of social and political cohesion," Shiarly said.
Unlike their Greek cousins, Cypriots rarely strike or take to the streets for protests over economic issues. Officials say this is because of a tradition of consensus-building among stakeholders, though critics say that has complicated long-overdue economic reforms.
"Cyprus has secured a healthy economy for many years, with industrial peace and we want this social cohesion to continue," Shiarly said.
