[Home] [Headlines] [Latest Articles] [Latest Comments] [Post] [Sign-in] [Mail] [Setup] [Help]
Status: Not Logged In; Sign In
|
Business/Finance See other Business/Finance Articles Title: Case Study: Looking Back at Cyprus Case Study: Looking Back at Cyprus By TK McDonald Cyprus is a small island nation in the eastern Mediterranean that is split between the north and south. The northern portion is a Turkish-occupied zone and puppet state, The Turkish Republic of Northern Cyprus, while the southern portion is the Republic of Cyprus and is culturally Greek. No other country except Turkey recognizes the northern portion, while the southern portion has been a European Union member since 2004 and part of the eurozone since 2008, before the global financial crisis that occurred in that year. Lead-up to Failure The Cypriot banking failure of 2013 took place in the Republic of Cyprus. Before the subprime mortgage failure in the United States in 2008 and its subsequent cascading repercussions, Cyprus was affluent and relied on tourism and its status as a lower-tax haven, serving as an offshore banking retreat for many wealthy investors. In fact, during the global recession in 2008 and 2009, Cyprus suffered a much milder recession than the rest of the eurozone, with a gross domestic product (GDP) of just over -1%. Too Many Greek Bonds Cypriot banks held a larger-than-average share of Greek bonds. With the debt crisis in Greece and an EU deal that wiped out a large portion of Greek government debt, the bonds devalued considerably. The two largest banks in Cyprus, the Popular Bank and the Bank of Cyprus lost €2.5 billion and €1 billion respectively, which launched their request for a bailout from their own government. As the government was insolvent as well, it approached the European Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF), collectively known as the Troika. The Deal With the Troika Meanwhile, the government of Cyprus decided to close all Cypriot banks and limit withdrawals until a bailout could be determined. At the time – and to this day – Cyprus was a unique case in which depositors were made to pay the price for bank and government insolvency failures. The bailout that was forced upon the Cypriot government forced the Popular Bank to close in failure without recompense for the depositors' funds. Bank of Cyprus customers with deposits over €100,000 were forced to pay a tax of 50% of their funds to withdraw their assets and were given bank shares in return, which plummeted in value after the bailout. Cyprus Policies Defended in European Union The EU defends its policies in Cyprus, even though Greece, Italy, Spain and Ireland all faced similar banking crises. Because of the size of foreign deposits in the Cypriot banking system, the only other option would have involved saddling the population of Cyprus with overwhelming debt. With almost €90 billion in its banking system at the time, it was disproportionately out of order to the economy of the country. However, in the year after the so-called bail-in, many Cypriots suffered job losses and losses of savings over the insured €100,000 amounts. Businesses that held funds for clients also suffered losses. The government of Cyprus received €10 billion in return for the bail-in to fund its banks and government. Road to Recovery Even though it was harsh to Cypriots, it looks like the bail-in may have saved the country’s banks, more than efforts in other countries. Cyprus posted a 1.5% GDP for 2015, its unemployment is slowly falling, reaching 15.5% in 2015, and inflation is expected to tick up to a small 0.2% in 2016, which is much better than the -1.6% in 2015. The country has stated that it may not need the €10 billion bailout money expected in 2016 as it comes to the end of the agreement. Its banking institutions are still known as offshore experts, providing tax havens for wealthy people from Russia, America and other countries, even after the failure of one of its banks. The banking crisis in Cyprus provides the EU with a litmus test for conducting a bailout in which the depositors actually pay for the debt of the country in return for bailout funds and remaining part of the EU and the eurozone. However, this was not repeated in any other EU country. Poster Comment: Let's make a deal, or as the Joos say, I have such a deal for you. ;) Post Comment Private Reply Ignore Thread
|
||
|
[Home]
[Headlines]
[Latest Articles]
[Latest Comments]
[Post]
[Sign-in]
[Mail]
[Setup]
[Help]
|
||