CYPRIOT CURRENT SITUATION-
In order to avoid being thrown away from European Union, Cyprus had to accept last minute bailouts. Of course to achieve this supposrt they have to make some sacrefices-in this case it will affect depositors, who put their savings in the Cypriot banks.This is supposed to be the way to prevent collapse of the economy.The country agreed to tax bank accounts holding 100,000 Euros. Now the tax is expected to be raised to 5,8 billion Euros and generally as Stefan Kourbelis(manager at centrum hotel in Nicosia) said, it can be seen as an experiment made on a smaller country which is not of great importance so the eventual damage can be bearable. I think he reffers to the previous problematic situation in Ireland, Greece, Portugal or Spain where depositors haven’t been touched by a crisis so deeply as in Cyprus.
In my opinin it is understandable that reach countires like Germany or the Netherlands do not want to be ”breakwinners” for poorer counties, supporting them continuously with their money. It brings out the concern about the efficiency of the Euro zone, because as Iraland’s Finance Minister Michael Noonan said the euro zone will face a lot of obstacles until the Cyprus issue is resolved,in particular the issue how bank depositors will be treated.
As we know the government extended the holiday for banks to put stop for run on banks. In addition banks are supposed to limit daily withdrawals. I consider that even though it might be helpful and it can slow the smuggling, it will anyway threathen to the local economy. It’s almost sure thet the capital control arrive to Cyprus to late, actually few years after it should be introduced.The new control’s target is to stop money from fleeing too fast, so in other words it deacrease the amount which anybody can take out of the Cypriot.It is claimed to be just temporary but if it will work I wouldn’t be so sure. During 2008 and 2009 Cypriot became good place for hot money.That was caused by the fact that Cypriot banks paid higher interest rates on euros and very often did not have a lot of requirements like for example the knowledge where those money come from. The Asian currency crisis of the 1990 showed how unstable country situation can be, taking into consineration hot money.
I think looking at Cipriot situation we can find many similarities with the event whhich occured in Ireland before.The also took advantege of capital inflows but in the end the oversised banking system failed and then when foreigners wanted their money at once, Ireland decided to support their banks leading to virtual bancrupcy of the country’s government.
Nowadays cypriot depositors like for example Mr. Argotis (an independent financial executive) feels really unsatisfied and angry about their current position, he says “We were a member of the European family.Now it seems they want to push us out of the euro.” Within Cyprus as people realize how badly the national economy might be influence by the combination of capital controls on the flow of money out of the country and the freeze on the account of bank deposits, feelings of dissappointment is increasing. Some establishment figures are now discussing the option of leaving the euro currency union.
I think we can also connect Cyprus economic and financial problems with U.S mortgage crisis from 2007.That time Cyprus suffered the sharp drop in the local business activity and tourism sector.
What is more unemployment in the country has been rising. The Cyprus economy has been influenced especially hard by the several bailout packages Greece was granted during the last few years.Cyprus was already going on with loans from Russia and the Greek crisis has only intensified its difficult position.Russia won’t help Cyprus. But on the other hand if Cyprus collapse, Russia would lose a lot because they have assets and holdings with a value of 24 billion euros
In my opinion the world is concerened about Cyprus mostly because its close ties to Greece- falining economy in one country will devastate the other one.What follows that- it will reflect on the E.U.,already weakened because of debts crisis. When it comes just to bare Cyprus there is not really any consequences in Europe because Cyprus production is just 0.2 % of the Eurozone production.
/By Emilia Janaszkiwicz,Alicja Łoś/