CYPRIOT CURRENT SITUATION

 

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.

Cypriot debt compared to Eurozone average

 

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.

 

Sources:

http://en.wikipedia.org/wiki/2012%E2%80%9313_Cypriot_financial_crisis

http://topics.nytimes.com/top/news/international/countriesandterritories/cyprus/index.html

http://www.bbc.co.uk/news/world-europe-21992745

 

/By Emilia Janaszkiwicz,Alicja Łoś/

 

 

 

8 thoughts on “CYPRIOT CURRENT SITUATION

  1. I would agree, Cyprus is to small economy that bigger countries with assets invested in this economy or European Union would be scared or that would refuse to help. It is matter of principals and if they help Cyprus with no conditions, than every country in trubble will ask for help. As of Euro zone, I think EU does not want to reduse the countries in the Euro zone actualy the opposite. But there must be some regulations, because without them crisis will never end.

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  2. In addition, in exchange for a €10 billion emergency aid package. It was reported that Cyprus in March agreed to E.U. demands to effectively confiscate up to 60 percent of any depositor’s holdings above €100,000 held in two of the country’s largest banks, Bank of Cyprus and Laiki Bank. (http://www.nytimes.com/2013/05/14/business/global/Cyprus-Gets-First-Tranche-of-Bailout-Funds.html?_r=0) At the same time, Laiki Bank was forced to fold, merging into Bank of Cyprus. It seems the situation is becoming worse & worse worldwide.

    – Kelly, Lauren. Becky

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  3. Extending holidays for banks is particularly unethical and dishonest move. This solution is extremely reckless and unprofessional. Although in the short run could pay off debt, long term has damaging consequences. I think that investments are only way out of the financial crisis. And instead of forcing depositors to pay high tax, they should be encouraged to invest their money, which would have a positive multiplier effects. In my opinion this is just an experiment and if that experiment fails no one would care about Cyprus.

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  4. Stefan Kourbelis, said that they are trying to make an experiment with a small country. If it works, the next could be Spain, Italy and others, and if things go badly they can just say „Who cares about Cyprus“and I agree with that. I believe that it is very unfair and unethical for them to introduce tax in that short period of time, but they are obviously doing how and what they like, and probably no one will be there to stop them.

    If they announced introduction of tax little earlier, and in smaller amount it would still cause a negative effect on investors, but they would be able to adapt, especially if that smaller tax helps Cyprus to pay back some debt, then they would start to trust the banks. Cyprus is in big problems, and there is no simple solution like introducing the tax which can resolve the problem. They can not collect that amount of money in such short period of time. Everything should be done less drastically. It has to pass a longer period of time in order to take any effect. Of course that they should pay back the dept, but not in this way, it will only cause that Cyprus and other countries with poor economy to sink even more in debt.

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  5. In my opinion, this kind approach is very egoistic, because that mean that people can’t trust to the banks. If something will happens, than governments put the responsibility to the lenders and there are no guarantee that they will have their money back. And in the future I think that other people would not want to put their money in to Cyprus banks, because they lose the trust to people.

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  6. It is quite obvious that this situation is just a minor setback in terms of how it will affect the EU because of the size of Cyprus, but on the other hand, this is very important to the people in Cyprus. Owners of deposits worth over 100.000€ are going to lose their life savings and even those with deposits of less than 100.000€ are still not completely safe. Russians are the biggest losers with almost one third of the entire deposit value in Cypriot banks and a lot of them have deposits of over 100.000€. Probably one of the consequences for the country in general will be that the ones who do get their money back (under 100.000€) will be looking to flee from the Cyprus banks as soon as possible, despite the probable restrictions in money withdrawal and in addition to that, the need for another bailout soon in the future is not yet excluded.

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  7. I agree with you when you say that German and other “big” countries shouldn’t help Cyprus because it’s just create a dependance. On the other way, if nobody help them, It will be the total crisis. I think the cause of the problem is the euro, it was a good idea for financial markets, business but only for 4-5 countries like Germany, France, Netherland… For small and poor countries, it’s a problem, they don’t have the same economy, the same GDP than the others, they can’t survive with a money more important than the previous. From this way, prices increases , cost increases so unemployment increases… Crisis arrived.

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  8. Cyprus is to small economy for using this kind of solutions. I think it is not fair to “rub” lenders with some extra tax because if person trust to be a lender he expect to get also some benefit but not rescuing country by own savings.

    Reply

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