The European Commission’s competition watchdog will be looking at the government’s recent action to deposit €2.5bn to the co-op bank through the issuance of bonds, it emerged on Thursday.
“The Commission is in touch with the Cypriot authorities about the issue,” a spokesman told the Cyprus News Agency.
The Directorate-General for Competition will decide whether the move constitutes state aid. It will also have to be approved by the Single Supervision Mechanism, which oversees the co-op bank.
Finance Minister Harris Georgiades told MPs on Wednesday that it was lawful state aid that the government must justify.
The minister too said they were in daily contact with the directorate.
The state, which nationalised the co-ops in 2013 through a €1.7bn injection, was forced to deposit €2.5bn earlier this month in a bid to boost confidence amid rumours that sparked a run on the lender.
The cash was raised from several bonds, worth €2.35, issued to the Cooperative Central Bank and from its cash reserves.
The government is in the process of finding an investor to dispose of the bank, or part of its assets in a process that started last month.