Olli Rehn has ruled out the possibility of Cyprus restructuring its debt as part of the country's discussions with international creditors on its bailout.

"A haircut is not an option for us", Rehn, the European Commissioner for Economic and Monetary Affairs and Vice President of the European Commission, said in an interview with Germany daily Handelsblatt.

Just yesterday Moody's Investor Service downgraded Cyprus's government bond rating three notches to 'Caa3 from 'B3' and placed a 'negative' outlook. The decision concludes a review began on November 16th of last year.

The credit ratings agency explained that the decision was made due to the "anticipated rise in the Cypriot government's debt burden, driven principally by the increased recapitalisaton needs of its banking system following distressed exchanges on Greek government debt and rising delinquencies on loans to Greek and Cypriot obligors."

Despite Rehn's insistence that a haircut on Cypriot bonds is not an option, Moody's believes there is a "significantly increased likelihood" that there will eventually be an outright default or a need for a distressed exchange, although the agency does not expect this to occur in 2013.

JM

Related share prices