Beaten up and robbed by traffickers when they arrived in Athens, Osama, his wife and two children were arrested as illegal immigrants and thrown into detention when they recounted their ordeal to Greek police. Ordered out of Greece but without any place to go, he rues the day he set foot in the country.

“All our hope is now in God. There is a war in Syria and the country has been destroyed,” said the 35-year-old as he sat in a dingy Athens basement apartment with a Syrian flag on the wall.

“In Greece, we have had the most bitter experiences and we cannot go to another country. We have no money, no IDs or passports to travel. We are trapped here.”

Greek authorities say police are obliged to arrest people who enter the country illegally.

Osama’s family is just one of a growing number of Syrian refugees arriving in Europe in the hope of a fresh start, only to find themselves trapped in its most financially ravaged nation, where the crisis has fuelled hatred for migrants.

Last year, Greece – the main gateway into the EU for migrants – arrested more than 8,000 Syrians for entering illegally as the uprising against President Bashar al-Assad raged on. Most had hoped to make their way to northern Europe.

Rights groups have criticized the treatment of Syrians in Greece, saying they are subject to arrest, detention, refusal of asylum and even deportation – a far cry from their reception in other EU nations like Sweden and Germany, which offer some form of automatic protection to Syrians.

“The situation for Syrian asylum seekers, like other asylum seekers in Greece, is pretty bad,” said Eva Cosse, who monitors Greece for rights group Human Rights Watch.

ROBBED AND JAILED

Osama’s story highlights the predicament of Syrian refugees, who find scant sympathy in Greece and little prospect of finding asylum or getting a job. Desperate to leave, they end up being exploited by traffickers.

After a bomb hit his home in Aleppo last year, Osama paid 7,000 euros ($9,000) to traffickers who smuggled his family by boat from Turkey to the Greek island of Samos.

Once in Athens, smugglers promising to take them onward in Europe lured them to an apartment where they were blindfolded, beaten, and their documents and 12,500 euros in savings stolen.

To their shock, police responded by arresting the entire family – including their children aged 3 and 5 – and putting them in an overcrowded detention center for illegal immigrants.

“We had been robbed, they nearly destroyed our souls, and we were jailed even though we were victims,” said Osama, who only gave his first name for fear of his relatives’ safety in Syria.

Weeks after their initial detention, Osama says he returned to the police station to follow up on their robbery, only to be arrested again and held for 10 days since he had stayed over the time limit allowed under their deportation order.

With a return to Syria ruled out and moving elsewhere in Europe impossible without money or passports, Osama’s family now rarely ventures out of their home in Athens, fearful of arrest by police and attacks by far-right vigilantes.

Nearly destitute, they rely on fellow Syrians to survive.

UNFAIR SYSTEM

Depending on where they arrive, Syrians face a “protection lottery” when they enter the EU, Human Rights Watch says, and by all accounts, Greece is one of the worst choices.

Since the start of 2012, at least 55 Syrians have been deported by Greece, the agency says, citing police figures.

Greece denies deporting Syrians, saying 58 repatriations last year were of those who wanted to go back – though HRW disputes that since voluntary returns are listed separately from deportations, and the EU’s Frontex agency has also reported a sharp increase in “forced returns” of Syrians by Greece.

Greece also rejected 150 asylum applications from Syrians last year and approved only two, the UN refugee agency says, when thousands fled a conflict that has claimed 70,000 lives.

“We wonder how on earth the examining authorities could consider any Syrian claim that was put in the course of 2012 as unfounded?” said Petros Mastakas, an associate protection officer at the United Nation High Commissioner for Refugees.

“We have no answer from the police on this.”

Greece – where even putting in a request for asylum requires camping for days outside an Athens office – is known for extremely low recognition rates for asylum seekers and in 2011 approved only 0.5 percent of refugee cases, Cosse said.

Such is Greece’s reputation that most Syrians refuse to request asylum here, the UNHCR says.

The UNHCR has suggested options to allow Syrians to stay legally in Greece even if they don’t want to seek asylum, but has had little response from the authorities, he said.

Instead, Greek police end up arresting and releasing Syrians with orders to leave the country within 30 days even though most have few practical options to do so – leaving them at risk of a vicious circle of arrest and detention, rights groups say.

DETENTION CENTRES

In a sprawling government complex in an Athens suburb, Greece’s top immigration official at the public order ministry denies that the country treats Syrian refugees unfairly.

“What we are trying to do is to treat them differently – to begin with, to release them from detention centers,” said Patroklos Georgiadis, adding that Greece wants to give Syrians special status but has yet to find a legal formula to do so.

He also denies that Greece has rejected Syrian asylum requests, saying that a 3-5 year backlog meant those who applied last year could not have had their case heard yet.

He defended Greece’s detention of Syrians, saying it had no choice but to arrest anyone who entered illegally and that it was legal to hold them for up to 18 months.

Greece’s deep financial crisis has exacerbated its long-running struggle to handle the influx of migrants from Asia and Africa, and rising hostility towards migrants has prompted a surge in attacks against them and helped usher the far-right Golden Dawn party to parliament last year for the first time.

The numbers of Syrians entering Greece so far represent a tiny fraction of the one million refugees who have fled Syria since the crisis erupted in 2011, but the government is worried that a sudden influx could stretch the nation beyond its limits.

“I told a counterpart that every morning, I have migrants from Syria on my mind,” Prime Minister Antonis Samaras said in a speech this week. “And this isn’t my job.”

Still, most Syrians who come to Greece are shocked at the depths of anti-immigrant sentiment here and their treatment at the hands of the police, says Aref Alobeid, a Syrian political science professor who has lived in Greece for over two decades.

“They cannot believe that such things happen in an EU country,” he said. “That’s why most of them want to leave after a few days and go to another European country.”

ONLY SIN

Among them is a former Syrian police officer turned rebel, who did not give his name for fear of his family’s fate.

He believed traffickers who told him he would be able to move on to other European countries after entering Greece from Turkey. What he got instead was a three-month stay in a cramped detention cell with 50 others in a Greek border town.

He refuses to seek asylum here, saying he was shocked to see police beating fellow detainees. Later in Athens he witnessed attacks against migrants by far-right vigilantes.

“You make a request, you are given a piece of paper, you are not allowed to go to another country, you are not given any help,” the 26-year-old said, showing off shrapnel wounds he sustained in Syria. “What’s the point? There is no hope.”

(Additional reporting by Renee Maltezou; Editing by Giles Elgood)

Eight months of inconclusive talks on a bailout package have
turned tiny Cyprus into a big headache for the euro zone,
triggering fears of a financial collapse that reignites the
bloc’s debt crisis.

In his first comments after his victory, Anastasiades
pledged to hammer out a quick deal with foreign lenders and
bring Cyprus closer to Europe, in a shift from the policies of
the outgoing Communist government that first sought aid from
Russia before turning to the EU.

“We want Europe on our side. We will be absolutely
consistent and meet our promises. Cyprus belongs to Europe,”
Anastasiades told jubilant supporters blowing horns. “We will
restore the credibility of Cyprus in Europe and internationally.
I promise you.”

Anastasiades, who will be sworn in on Thursday and assume
power on March 1, will have little time to celebrate.

European officials want a bailout agreed by the end of
March, but the 66-year-old lawyer will first have to overcome
German fears that Cyprus is a hub for Russian money laundering
and worries that it will never be able to pay back its debt.

Known for his no-nonsense style and impressive access to key
European policymakers like German Chancellor Angela Merkel,
Anastasisades took 57.5 percent of the vote, 15 points ahead of
his anti-austerity Communist-backed rival Stavros Malas.

The decisive outcome showed a clear mandate from Cypriots
for an aggressive, pro-bailout approach to resolving the
nation’s financial quagmire, despite growing despondency over
austerity measures that will have to accompany any such rescue.

Financial markets had been hoping for an Anastasiades
victory to speed up a joint rescue by the European Union and
International Monetary Fund before the island runs out of cash
and derails the fragile confidence returning to the euro zone.

Talks to rescue Nicosia have dragged on since June, after a
Greek sovereign debt restructuring saddled its banks with
losses. It is expected to need up to 17 billion euros in aid -
about the size of its entire economy.

Virtually all rescue options – from a bailout loan to a debt
writedown or slapping losses on bank depositors – are proving
unpalatable because they push Cypriot debt to unmanageable
levels or risk hurting investor sentiment elsewhere in the bloc.

German misgivings about Cyprus’s commitment to fighting
money laundering and its strong financial ties with Russia -
which has already extended a 2.5 billion euro loan to the nation
- have further complicated the negotiations.

CLOSER TO EUROPE

Anastasiades takes the reins of a Mediterranean nation
ravaged by its worst economic crisis in four decades, with
unemployment at a record high of 15 percent. Pay cuts and tax
hikes ahead of a bailout have further soured the national mood.

His most immediate task will be to appoint a finance
minister who can convince Europeans to agree a swift bailout.
The favourite for the post is former finance minister Michael
Sarris, a respected former World Bank economist.

Anastasiades has stressed his pro-EU credentials make him
more likely to seal a bailout deal than the outgoing president,
who was the EU’s only Communist leader.

EU Commission president Jose Manuel Barroso said he spoke to
Anastasiades after the victory and assured him that the bloc was
committed to helping Cyprus overcome its problems.

In a clear shift with the policies of his predecessor who
objected to any links with NATO, Anastasiades said one of his
first tasks would be to apply for Cypriot membership of the
NATO-affiliated Partnership for Peace.

Cyprus’s Communist government held NATO responsible for
what it says was a conspiracy to split the island in 1974, when
it was ethnically divided between Greek and Turkish Cypriots.

“We need a government with weight that can talk to (EU)
partners, that is cooperative, that can be heard and do what it
pledges to do,” Christopher Pissarides, a Cypriot who won the
Nobel prize in economics in 2010 told Reuters.

“We hadn’t been doing this until now.”

Conservative leader Nicos Anastasiades, who favours
hammering out a quick deal with foreign lenders, is tipped to
win against Communist-backed rival Stavros Malas, who is more
wary of the austerity terms accompanying any rescue.

Financial markets are hoping for an Anastasiades victory to
speed up a joint rescue by the European Union and International
Monetary Fund before the island runs out of cash and derails
fragile confidence returning to the euro zone.

The 66-year-old lawyer took more than 45 percent of the vote
in the first round in the Greek-speaking Cypriot south, easily
beating 45-year-old geneticist Malas, who took 27 percent.

Polls close at 1600 GMT, with the result expected soon
afterwards.

The winner will take the reins of a Mediterranean nation
ravaged by its worst economic crisis in four decades, with
unemployment at a record high of 15 percent. Pay cuts and tax
hikes ahead of a bailout have further soured the national mood.

“We have to choose between the lesser of two evils,” said
Georgia Xenophondos, a 23-year-old receptionist who voted for a
third contender in the first round. She now plans to vote for
the conservative chief, but is wary of backing more austerity.

“We are already damaged by it and I don’t know if we can
take anymore,” she said. “We’ve hit poverty, unemployment and
lost respect from the EU – things we didn’t see five years ago.”

Newspapers reflected the grim outlook, warning of an uphill
climb for the new president. One described it as walking towards
“Calvary”, where the Bible says Jesus was crucified.

“He will be plunged straight into the deep end, and failure
is not an option,” the Simerini daily wrote.

Fewer voters were expected to show up at the polls than on
Feb. 17 after the third-placed candidate refused to back either
contender in the runoff, boosting Anastasiades’s chances.

About a half million Cypriots are eligible to vote but many
are expected to abstain or cast blank votes in protest. Both
contenders have implored Cypriots not to shirk their duty.

“These elections are so crucial, that really, nobody can
turn themselves into a passive spectator,” Malas said as he
voted on the outskirts of the divided capital Nicosia.

CROSSROAD

Talks to rescue Nicosia have dragged on eight months since
it first sought help, after a Greek sovereign debt restructuring
saddled its banks with losses. It is expected to need up to 17
billion euros in aid – worth the size of its entire economy.

Virtually all rescue options – from a bailout loan to a debt
writedown or slapping losses on bank depositors – are proving
unfeasible because they push Cypriot debt up to unmanageable
levels or risk hurting investor sentiment elsewhere in the bloc.

German misgivings about the nation’s commitment to fighting
money laundering and strong financial ties with Russia have
further complicated the negotiations.

European officials want a bailout agreed by the end of
March, ensuring no honeymoon period for the new president, who
will be sworn in on Feb. 28 and assume power on March 1.

Longstanding anger over the island’s 40-year-old division
into the Greek-speaking south and Turkish north has been
relegated to a distant second behind the country’s financial
quagmire as an election issue this year.

“Cyprus is at a crossroads,” Anastasiades said as he voted
in the port town of Limassol, surrounded by his grandchildren.

“From tomorrow, whoever is elected, should be aware he has
to deal with important, critical problems which our country is
facing and the immediate handling of the economic crisis.”

A heavy smoker known for his no-nonsense style, Anastasiades
is widely respected but suffered political humiliation nine
years ago when he supported a U.N. blueprint to reunify the
island that was later rejected by the public.

He has suggested the island may even need a bridging loan to
tide it over until a rescue is nailed down.

His younger rival Malas is handicapped by the support of the
incumbent Communists who are perceived as having mismanaged the
economic crisis and a munitions blast in 2011.

Still, he is expected to get a boost from his pledges to
drive a hard bargain with lenders and anti-austerity rhetoric
that resonates with many Cypriots struggling to make ends meet.

“Whatever happens in this vote, the day after is going to be
very difficult for Cyprus,” said Demetris Charalambous, a
56-year-old convenience store owner. “People are really
depressed.”

Home to over 30,000 Russians who began flocking to Cyprus
after the Soviet Union’s collapse and catering to many more
tourists each year, locals jokingly refer to the town, complete
with Russian signs and schools, as “Limassolgrad”.

“Cyprus is a fantastic place to do business from – people
are friendly and for Russians it’s very convenient because every
single person in Limassol speaks some Russian,” said Vadim
Romanov, a 28-year-old Russian property developer who says he
also has business interests in restaurants in the town.

“It’s like I never left Russia.”

Limassol, in the Greek speaking Cypriot south, epitomises
the love affair between two Orthodox Christian nations that can
be traced back to Byzantine times and is now underpinned by deep
financial ties.

But those ties are coming under unprecedented scrutiny by
European policymakers who question whether Cyprus is a hub for
Russian money laundering, while pressing Moscow to extend its
2.5-billion euro loan to help the island avoid bankruptcy.

Eye-popping amounts of cash wash between the two countries
every year – several times Cyprus’s 18-billion-euro national
income – as Russians take advantage of a treaty that lets them
pay the island’s low tax rates but also raising suspicions among
some EU states that complex transfers are used to launder money
that was illegally earned or on which more tax should be paid.

Cyprus – which will elect a president in a run-off vote on
Sunday – is still waiting on EU aid eight months after asking
for help, with a bailout held up partly on German fears that the
euro zone could inadvertently be bailing out wealthy Russians
who have parked their money in financial institutions in Cyprus.

Eurozone finance ministers commissioned a private report
this month into the island’s anti-money laundering safeguards
but the suggestion of illicit money flowing through Cyprus
provokes reactions ranging from perplexity to fury in Limassol,
where some think the EU is looking for excuses not to help out.

Allegations of money laundering are hotly denied by Cyprus,
which says it got top marks in assessments by independent review
bodies, such as Moneyval, an arm of the Council of Europe.

“They are making a very big injustice against Cyprus,” said
Andreas Neocleous, a top Cypriot lawyer who has been involved in
Russian deals since setting up a Moscow office in 1991.

“In this very small neighbourhood and very small society,
even a transfer of an amount of half a million (dollars) is
known to everybody. So where is the money-laundering?”

Cyprus has dismissed the idea, aired in international media,
that losses may be imposed on banks as a condition for EU aid.
But Neocleous said some Russians saw a “red lamp” and began
pulling money out, although others saw no sign of an exodus.

Like many on the island, Neocleous accuses fellow Europeans
of hypocrisy, saying Europe and the United States take a much
bigger share of Russian business than Cyprus.

“Russian business is a very big cake. Cyprus takes out of
this cake … nothing,” he said. “It’s not even sitting at the
table – it takes some rubbish that falls on the ground.”

VIRTUAL CONNECTIONS

European misgivings focus on why tiny Cyprus is such a big
magnet for Russian money.

Russian banks held $9 billion of their deposits abroad in
Cyprus at end-2011. Over the last five years Cypriot entities
accounted for $60 billion, or 23 percent, of foreign direct
investment into Russia, while 30 percent of Russian investment
abroad was in Cyprus, according to Russian central bank data.

That means Cyprus – which accounted for 28 percent of the
FDI stock in Russia at the end of 2011 – astonishingly invests
five times the size of its economy in Russia, the central bank
data, cited this month in a report by Morgan Stanley, showed.

In reality, the links are more virtual than real, and the
ultimate owner of most of Russian FDI tends to be Russian since
many Russian owners simply structure firms as a Cypriot parent
owning a Russian unit, Morgan Stanley said.

In other words, few Russians are investing in physical
assets in Cyprus – beyond some villas and yachts – and few
Cypriots are investing heavily in Russia. The figures simply
reflect the flow of cash from Russia to Cyprus and back again.

Both sides say there is nothing dubious about it. The use of
such vehicles is driven by factors like a 1998 Russia-Cyprus tax
treaty that lets Russians pay a low 5-percent rate on dividends,
the former British colony’s use of English law, a reputation for
“light touch” regulation and Russian political risk.

By parking assets on the island, Russians still wary of the
state after 70 years of communism can also hope to shield their
savings from the risk of future confiscation, analysts say.

But complex transfers cloud the origins and ownership of
funds in a way familiar to money laundering investigators the
world over and has fueled suspicions among wealthier EU states
that Cyprus’s appeal for Russians is not entirely healthy.

Just this week, the head of Russia’s central bank complained
that $49 billion was siphoned abroad last year – 2.5 percent of
the national income – as result of illegal transactions, ranging
from bribes and drug deals to tax evasion.

MIDDLE-CLASS RUSSIANS

In his glass-walled office decked with large flat screens,
Russian businessman Romanov says Cyprus’s appeal is more simple
than sinister.

Tax efficiency, sunny weather, a short four-hour flight from
Moscow, ease in getting a visa – or permanent residency if one
buys property for over 300,000 euros ($400,000)- and an
established community that includes four Russian schools and two
radio stations, all put Cyprus ahead of other centres, he says.

“From the time I step out of the door of my apartment in
Moscow to the time I walk in my office here, the total trip is
about 5-6 hours,” he said. “It takes longer for me to drive from
my apartment in Moscow to my country house.”

Romanov said his Russian clients continued to show strong
interest, expecting the euro zone to keep Cyprus afloat, and
expressed confusion over the fuss about possible
money-laundering.

If any Russians evaded tax by bringing money here – and he
says he is convinced his clients do not – it is an issue for
Russia, he says, rather than for Cyprus or for Germany, whose
taxpayers will have to pay for the bulk of any EU bailout.

At any rate, most of the Russians buying properties here are
middle-class, he says, with a budget of between 250,000-500,000
euros, rather than wealthy oligarchs.

“So what money-laundering are we talking about? Of 300,000
euros?” the fresh-faced entrepreneur says with a laugh. “If they
want to go after the rich Russians – go to London or Germany.”

London in particular is a favoured destination for Russia’s
super-rich, seeking homes worth tens of millions of dollars.

POOLS, HEATING AND SCHOOLS

The influence of Russian money is plainly visible in
Limassol, where large billboards in Russian advertise seaview
apartments and villas with infinity pools.

At his fur shop near the seafront where minks and fox fur
coats retail for up to 3,000 euros, Andreas Charalambous proudly
describes his clientele: “One hundred percent Russian”.

Further down the road, a car rental agency two years ago
began offering Ferraris and Porsches for 1,500 euros a day,
mainly to Russian tourists, whose numbers have more than doubled
from three years ago to over 474,000 last year thanks to an
online visa process.

“There is huge tourism from Russia and they want supercars.
Many of them have supercars at home in Russia but don’t get the
chance to use them,” said Savvas Savva, its marketing manager.

“We combine sunshine, nice routes and of course an open roof
- they always want the roof down because they can’t at home.”

Many of the swanky yachts docked at Limassol’s marina are
owned by Russians, who have also snapped up luxury seaview
condos in high-rises where prices start at over 1 million euros.

Gated communities – a novelty for a country with low crime
levels – have also begun popping up around town, many with
private pools and central heating – all unusual for Cypriots.

“For the same amount of money for an apartment in Moscow you
can buy a villa near the beach here,” said Christos Panagi, a
Cypriot high-end property developer who showed off freshly
painted townhouses with tidy gardens. Like many Cypriot men, he
is married to a Russian and employs Russian speakers.

“The Russian community here feels itself a part of Cyprus,”
said Natalia Kardash, editor of the Vestnik Kipra weekly, one of
two Russian newspapers in Cyprus. “You can’t find a Cypriot who
doesn’t know at least one word of Russian.”

Many of the Russian families in Limassol are like those of
Svetlana Vasileva, a 42-year-old former accountant from Moscow.
Her husband does business in Russia but moved his family here so
their three children could enjoy an English school education in
the former British colony, where English remains widely spoken.

“Cyprus has the best climate, the sea is very near, and
Cypriots are Orthodox Christians like Russians,” said Vasileva,
as she sat in her seaview apartment adorned with black and white
family photos from Russia. She has found Cypriots to be
friendly, enjoys concerts and picnics with other Russians here
and attends Russian services at a Greek Cypriot church.

“Life in Cyprus is like in a village – it’s very slow,” she
said with a chuckle. “I’m planning to stay here all my life.”

($1 = 0.7598 euros)

(Additional reporting by Stelios Orphanides in Limassol,
Douglas Busvine in Moscow and Jan Strupczewski in Brussels;
Editing by Philippa Fletcher)

Conservative leader Nicos Anastasiades, who polled over 45
percent in last Sunday’s first voting round and is the favourite
to win the Feb. 24 runoff, told Reuters various parties,
including “governments and funds” which he did not identify, had
been “sounded out” for a short-term loan.

The “one or two month” loan would not supplant a bailout for
which Cyprus is in talks with the European Union and the
International Monetary Fund, he said.

“This would be in order to complete the (bailout) loan
agreement with some comfort, without the threat or the fear of
collapse,” Anastasiades told Reuters at his party offices.

“That means not to be under the dilemma of a deadline,” he
added.

The 66-year-old lawyer declined to say whom he had
contacted. It was the first time a presidential candidate in
Cyprus has disclosed talks to secure a loan ahead of a bailout
rescue – talks which have dragged on for eight months.

“We would want a very short period to study the (bailout)
terms, to see how we could avoid distortions without dealing
with the pressure of the state going bankrupt,” said
Anastasiades, who faces leftist rival Stavros Malas on Sunday.

Malas, a pro-bailout but anti-austerity independent backed
by the Communist party now in government, lags Anastasiades by
18 points in opinion polls.

A Socialist party that endorsed a third candidate in the
first round has not backed either candidate, boosting hopes for
the conservative chief known for his no-nonsense manner.

DEVASTATING DISASTER

With Cyprus shut out of financial markets for almost two
years, its outgoing leftist government has relied on short term
and costly financing for months to meet its day-to-day needs.

The island nation is badly in need of a bailout of up to
17.5 billion euros ($23 billion) – almost the size of its gross
domestic product – mainly due to the devastating impact of a
Greek debt restructuring on its outsized banking sector in early
2012.

Investors are closely watching Cyprus’s bailout discussions
amid fears continued delays in clinching a bailout could hurt
confidence in the euro zone just as fears of a Greek exit fade.

Although small compared to the rest of the euro zone
economy, Cyprus’s attempts to secure international aid have been
bedevilled by concerns that the island is unlikely to be able to
pay back a loan that dwarfs the size of its economy.

Anastasiades said recently speculated options to make debt
manageable – from a sovereign debt writedown to imposing losses
on depositors – were out of the question.

“Not only do I completely rule it out, I would consider it a
devastating disaster to the economy,” he said in a book-lined
office, adorned by photos of his daughters and grandchildren.

“That would be a punitive measure, not a measure to save
(Cyprus).”

Cyprus already has slapped pay cuts on an inflated public
sector and tax hikes in anticipation of a bailout. Anastasiades
said he did not favour conditions which were overly harsh.

“Our intention is to faithfully meet a loan agreement which
will not provoke upheaval, or (include) unfair conditions from a
negotiation made in haste under the pressure of time,” he said.
($1 = 0.7563 euros)

(Reporting By Michele Kambas; Editing by Michael Roddy)

Conservative leader Nicos Anastasiades, who backs a swift
deal with EU and IMF lenders on a bailout to avert a Cypriot
bankruptcy, won Sunday’s vote but fell short of the absolute
majority needed to avoid a run-off on Feb 24. He faces
Communist-backed Stavros Malas in that round.

Any financial crash in Cyprus could reignite the euro zone
debt crisis just as confidence slowly returns to the bloc.

Complicating matters for investors, both leading candidates
must court voters who backed runner-up George Lillikas, an
independent deeply suspicious of terms for any bailout – which
he says may keep Cyprus in perpetual bondage to foreign lenders.

“Our country is at a crucial juncture,” Lillikas told his
supporters, refusing to disclose which candidate he will back.

“We will support policies which defend the sovereignty of
the Republic of Cyprus, and every policy which defends our
national interests and is resistant to the will of foreigners.”

The anti-austerity campaigner turned in a surprisingly
strong performance in Sunday’s election, taking 25 percent of
the vote and trailing Malas, who campaigned on a pro-bailout but
anti-austerity platform, by just 2 points.

A lawyer who has led the Democratic Rally party since 1997,
Anastasiades secured 45.4 percent and remains the favourite to
clinch a victory next Sunday.

“I will reach out to political leaders, seeking to broaden
the public mandate we have even more,” Anastasiades told
cheering supporters after the first round.

“(It is a mandate) to get rid of a leadership which led us
to food rationing, unemployment and misery.”

RESCUE TALKS

If successful, Anastasiades faces a long list of challenges
in convincing European Union and International Monetary Fund
lenders to sign off on a rescue before the tiny state faces a
1.4 billion euro debt repayment in June.

He will have to assuage fears Cyprus will never be able to
pay back its debt even if given a bailout loan equivalent to the
size of its economy, and quell concerns in northern Europe that
the island is a hub for laundering money from Russia.

Talks on a rescue, which have dragged on for eight months,
have also proven tricky because almost any way of solving the
crisis – from restructuring debt to slapping losses on banks -
could set a precedent for other troubled states and damage
sentiment just as fears of a Greek euro zone exit fade.

European Central Bank board member Joerg Asmussen said on
Sunday he hoped a financial rescue agreement that would include
privatisations could be reached with a new Cyprus government by
the end of March.

Cyprus sought financial help last year after its banks
suffered huge losses from Greece’s sovereign debt restructuring.
The island, which has been shut out of international financial
markets since May 2011, needs about 17 billion euros in aid -
roughly the same as its gross domestic product.

Reuniting Cyprus after its division nearly 40 years ago into
a breakaway Turkish Cypriot state in the north and the
internationally recognised south run by Greek Cypriots has
lagged far behind economic troubles as an election issue.

“This result means that Cypriots have not quite decided if
Anastasiades is the man to get them out of the crisis. It will
be a tough second round,” said Fiona Mullen, an economist at the
Sapienta consulting firm.

“It makes it a bit tougher for Anastasiades to persuade EU
leaders that Cyprus is on the right path, that they will do what
it takes to get a bailout.”

With unemployment hitting a record 15 percent and Cypriots
still coming to grips with pay cuts, tax hikes and benefit cuts
imposed last year in preparation for a bailout, many feel things
can only get better from here.

“The situation undoubtedly can’t get worse and I expect
concrete action (from Anastasiades) to revitalise the economy,
to bring recovery and give hope to the people,” said 53-year-old
doctor Pavlos Drakos.

A financial crash in Cyprus could reignite the euro zone
debt crisis and investors are keen to see Anastasiades, the
strongest advocate of an international rescue, clinch victory
and secure a bailout, even though that too, has its drawbacks.

Analysts said the 66-year-old lawyer looked likely to win
the Feb. 24 run-off, but that the strong combined showing of his
two main rivals who campaigned against austerity showed the
depths of anti-bailout anger in the nation.

“It is a victory for the forces who want us to turn a page,”
Anastasiades, 66, said after the results were announced.

A lawyer who has led the Democratic Rally party since 1997,
he secured a 45.4 percent share of the vote, well ahead of
leftist Stavros Malas who trailed with 26.9 percent. George
Lillikas, an independent, took 24.9 percent of the vote.

“This result means that Cypriots have not quite decided if
Anastasiades is the man to get them out of the crisis. It will
be a tough second round,” said Fiona Mullen, an economist at the
Sapienta consulting firm.

“It makes it a bit tougher for Anastasiades to persuade EU
leaders that Cyprus is on the right path, that they will do what
it takes to get a bailout.”

If successful in the runoff, Anastasiades faces a long list
of challenges in convincing European Union and International
Monetary Fund lenders to sign off on a rescue before the tiny
state faces a 1.4 billion euro debt repayment in June.

He will have to assuage fears that Cyprus will never be able
to pay back its debt, and quell concerns in northern Europe that
the island is a hub for laundering money from Russia.

Talks on a rescue, which have dragged on for eight months,
have also proven tricky because almost any way of solving the
crisis – from restructuring debt to slapping losses on banks -
could set a precedent for other troubled states and damage
sentiment just as confidence slowly returns to the euro zone.

COUNTRY’S SURVIVAL

With rising anger at record unemployment of 15 percent and a
round of belt-tightening, the eastern Mediterranean nation’s
worst economic crisis in four decades has eclipsed its almost
40-year-old partition as the main issue in this year’s election.

Cyprus sought financial help last year after its banks
suffered huge losses from Greece’s sovereign debt restructuring.
The island, which has been shut out of international financial
markets since May 2011, needs about 17 billion euros in aid – a
sum worth as much as its entire economy.

Anastasiades has pledged a quick agreement with the European
Union and International Monetary Fund on a financial rescue,
which investors want agreed before the island’s woes derail
progress in shoring up the rest of the euro zone’s periphery.

Malas has campaigned on a pro-bailout but anti-austerity
platform while Lillikas has rejected onerous terms tied to any
bailout, saying Cyprus could swiftly extricate itself by using
the natural gas reserves that lie under its shores.

Potential kingmaker Lillikas declined to say who he would
support in next week’s runoff, but Malas signalled he would look
to join forces with his fellow anti-austerity crusader.

“We have a lot in common with those who supported George
Lillikas; we have a lot in common, historically, and on the
specific problems that Cyprus now faces,” Malas, 47, told
supporters. “Together we can deal with the crisis with
development and without harsh policies against society.”

European Central Bank board member Joerg Asmussen said he
hoped a bailout could be struck with the new Cypriot government
by the end of March after the elections, the outcome of which he
said the ECB was neutral on. It was not clear whether he knew
when he was speaking that there would be a second round.

Reuniting Cyprus after its division nearly 40 years ago into
a breakaway Turkish Cypriot state in the north and the
internationally recognized southern state run by Greek Cypriots
has lagged far behind as an election issue.

Cypriots, still coming to grips with a cocktail of pay cuts,
tax hikes and benefit cuts imposed last year in preparation for
a bailout, have been little impressed by the election rhetoric
but some felt things could only get better from here.

“We have reached the bottom and we need someone trusted by
Europe so that Cyprus can start developing again,” said Lucy
Iasonos, 52, one of hundreds of Anastasiades supporters who
gathered outside his party offices to celebrate.

A financial crash in Cyprus could reignite the euro zone debt crisis and investors are keen to see Anastasiades, the strongest advocate of an international rescue deal likely to come with harsh conditions, clinch victory and secure a bailout.

The eastern Mediterranean nation’s worst economic crisis in four decades has eclipsed its almost four-decade-old partition as the main issue in this year’s election.

Anastasiades, 66, a lawyer who has led the Democratic Rally party since 1997, led with 45.3 percent of the vote after 94 percent of the vote was counted, well ahead of leftist rival Stavros Malas, who took an average of 27.1 percent of the vote.

Exit polls earlier suggested Anastasiades might be able to secure just over 50 percent of the vote, which would have allowed him to avoid the run-off on February 24.

A third contender, independent candidate George Lillikas, took 25 percent of the vote, according to the results so far.

COUNTRY’S SURVIVAL

Anastasiades has pledged a quick agreement with the European Union and International Monetary Fund on a financial rescue, which investors want agreed before the island’s woes derail progress in shoring up the rest of the euro zone’s periphery.

“It is the survival of our country which is at stake,” Anastasiades said earlier on Sunday after voting in the port town of Limassol, accompanied by his three grandchildren.

Nailing down a deal has proven tricky because almost any way of solving the crisis – from restructuring debt to slapping losses on banks – could set a precedent for other troubled states and damage sentiment just as confidence slowly returns to the euro zone.

Fears that Cyprus will never be able to pay back its debt, and German misgivings about its commitment to fighting money laundering, have further complicated talks on a rescue, which have dragged on for eight months.

Cyprus sought financial help last year after its banks suffered huge losses from Greece’s sovereign debt restructuring. The island, which has been shut out of international financial markets since May 2011, needs about 17 billion euros in aid – a sum worth as much as its entire economy.

Reuniting Cyprus after its division nearly 40 years ago into a breakaway Turkish Cypriot state in the north and the internationally recognized southern state run by Greek Cypriots has lagged far behind as an election issue.

Cypriots, still coming to grips with a cocktail of pay cuts, tax hikes and benefit cuts imposed last year in preparation for a bailout, have been little impressed by the election rhetoric.

“I hope that things will be better in terms of the economy and jobs, but I doubt it,” said Georgios Poullos, a 41-year-old who is unemployed. “It’s not in our hands. I think whoever gets in won’t change it.”

(Writing by Deepa Babington; editing by Philippa Fletcher)

A financial crash in Cyprus could reignite the euro zone debt crisis and investors are keen to see Anastasiades, the strongest advocate of an international rescue deal likely to come with harsh conditions, clinch victory and secure a bailout.

The eastern Mediterranean nation’s worst economic crisis in four decades has eclipsed its almost four-decade-old partition as the main issue in this year’s election.

Anastasiades, 66, a lawyer who has led the Democratic Rally party since 1997, took between 49.6 and 52.6 percent of the vote, an exit poll by the CyBC state broadcaster said. It put his support on average at 51.1 percent, which, if borne out by results, would mean he can avoid a run-off on February 24.

TEMPER

The career politician – once dubbed “Nasty Nick” for his hot temper – was well ahead of leftist rival Stavros Malas, who took an average of 27.3 percent of the vote, according to the poll.

A third contender, independent candidate George Lillikas, took 18 percent of the vote, the poll showed.

Anastasiades has pledged a quick agreement with the European Union and International Monetary Fund on a financial rescue, which investors want agreed before the island’s woes derail progress in shoring up the rest of the euro zone’s periphery.

“It is the survival of our country which is at stake,” Anastasiades said earlier on Sunday after voting in the port town of Limassol, accompanied by his three grandchildren.

Nailing down a deal has proven tricky because almost any way of solving the crisis – from restructuring debt to slapping losses on banks – could set a precedent for other troubled states and damage sentiment just as confidence slowly returns to the euro zone.

Fears that Cyprus will never be able to pay back its debt, and German misgivings about its commitment to fighting money laundering, have further complicated talks on a rescue, which have dragged on for eight months.

Cyprus sought financial help last year after its banks suffered huge losses from Greece’s sovereign debt restructuring. The island, which has been shut out of international financial markets since May 2011, needs about 17 billion euros in aid – a sum worth as much as its entire economy.

Reuniting Cyprus after its division nearly 40 years ago into a breakaway Turkish Cypriot state in the north and the internationally recognized southern state run by Greek Cypriots has lagged far behind as an election issue.

Cypriots, still coming to grips with a cocktail of pay cuts, tax hikes and benefit cuts imposed last year in preparation for a bailout, have been little impressed by the election rhetoric.

“I hope that things will be better in terms of the economy and jobs, but I doubt it,” said Georgios Poullos, a 41-year-old who is unemployed. “It’s not in our hands. I think whoever gets in won’t change it.”

(Writing by Deepa Babington; editing by Philippa Fletcher)

The eastern Mediterranean nation’s worst economic crisis in four decades eclipsed its almost four-decade-old partition as the main issue in this year’s election, which conservative leader Nicos Anastasiades was tipped to win.

Polls showed Anastasiades, the most pro-bailout figure among the main presidential contenders, with a 15-point lead over his closest leftist rival, Stavros Malas that might even secure the outright majority needed to avoid a run-off a week later.

An air of despondency about the country’s grim economic prospects hung over Greek Cypriots as they trickled to the polls. Results from over half a million votes expected to be cast were due by 1830 GMT.

Election officials reported a low morning turnout in mild late-winter sunshine. Most early voters were elderly, dressed in their Sunday best and heading to church mass.

“We don’t want to sign a bailout immediately without looking at the terms and conditions; we want something tolerable,” said Kyriakos Georgiou, a 73-year-old retired pharmacist. “We have an economic crisis but they can’t be grabbing us by the throat.”

Investors are keen to see Anastasiades, 66, a lawyer who has led the Democratic Rally party since 1997, clinch victory and get working on a bailout deal with lenders immediately.

He has pledged a quick agreement with the European Union and International Monetary Fund on a rescue, which investors want thrashed out before the island’s woes derail progress made in shoring up the rest of the euro zone’s periphery.

“It is the survival of our country which is at stake,” Anastasiades said after voting in the port town of Limassol, accompanied by his three grandchildren.

Nailing down a deal has proven tricky because almost any way of solving the crisis – from restructuring debt to slapping losses on banks – could set a precedent for other troubled states and damage sentiment just as confidence slowly returns to the euro zone.

Fears that Cyprus will never be able to pay back its debt, and German misgivings about its commitment to fighting money laundering, have further complicated talks on a rescue, which have dragged on for eight months.

“Everything is at stake, like it has never been before,” said Kyriakos Iacovides, publisher of the Cyprus Mail newspaper.

“The country must be rebuilt, Cyprus must be rehabilitated in the EU. We need a strong leadership to rebuild the country.”

Cyprus sought financial help last year after its banks suffered huge losses from Greece’s sovereign debt restructuring. The island, which has been shut out of international financial markets since May 2011, needs about 17 billion euros in aid – a sum worth as much as its entire economy.

Current President Demetris Christofias, a communist, is not seeking re-election.

DULLEST CAMPAIGN

The last polls showed Anastasiades with just over 40 percent share of the vote, comfortably ahead of Communist-backed Malas and the other main challenger, independent George Lillikas.

Malas has campaigned on a pro-bailout but anti-austerity platform while Lillikas has rejected onerous terms tied to any bailout, saying Cyprus could swiftly extricate itself by using the natural gas reserves that lie under its shores.

“What we have are two weak candidates against a potentially unpopular figure. Anastasiades is a polarizing figure in Cypriot politics, respected but not necessarily liked,” said Hubert Faustmann, an associate professor at the University of Nicosia.

“The economy has dominated, and this must be one of the dullest election campaigns I have ever seen. Somehow it hasn’t electrified people. They could be jaded.”

Anger at unemployment hitting a record high of 15 percent cast a pall over campaigning, where rival candidates jockeyed to cast themselves as the best man to steer Cyprus through its economic storm.

Anastasiades ran on a slogan declaring, “The crisis needs a leader,” while Malas retorted with a campaign proclaiming, “The crisis needs a credible leader.”

Reuniting Cyprus after its division nearly 40 years ago into a breakaway Turkish Cypriot state in the north and the internationally recognized southern state run by Greek Cypriots has lagged far behind as an election issue.

Cypriots, still coming to grips with a cocktail of pay cuts, tax hikes and benefit cuts imposed last year in preparation for a bailout, have been little impressed by any of the rhetoric.

“I hope that things will be better in terms of the economy and jobs, but I doubt it,” said Georgios Poullos, a 41-year-old who is unemployed. “It’s not in our hands. I think whoever gets in won’t change it.”

(Writing by Deepa Babington; Editing by Stephen Powell and Todd Eastham)