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NICOSIA, Cyprus—A deadly explosion that shut down Cyprus' major power plant and spawned a week of rolling blackouts has wreaked such damage to the economy that it may need to be bailed out, the country's top banker has warned.

The government should enact more austerity measures to deal with an escalating crisis that has seen homes, businesses and government offices go without air conditioning in mid-summer, when temperatures often hit 100 degrees (37 centigrade), central bank governor Athanasios Orphanides.

"I believe that the economy is now at a state of emergency, comparable to that of 1974," Orphanides said in a July 18 letter to President Dimitris Christofias, which was obtained by The Associated Press on Wednesday.

In 1974, Cyprus was split along ethnic lines after a coup by supporters of union with Greece was followed by a Turkish invasion. The country, which took up the euro in 2008, remains divided despite years of talks.

Cyprus, which has not been dragged into Europe's debt crisis mire despite its close links with Greece, has been badly hit by the July 11 explosion of seized Iranian munitions.

The munitions—gunpowder inside dozens of containers confiscated from an Iran chartered ship in 2009 that the U.N. said had breached a ban on Iranian arms exports—had been stacked in an open field at the naval base.

Official documents show military officials had warned that exposure to the elements could have ma... >>>