Monday, March 18, 2013

The Dummies Guide to the Cypriot Economy

The Dummies Guide to the Cypriot Economy

Cyprus – known to most people as a holiday resort or as a desirable posting for RAF personnel, is hitting the news due to its current problems.

This time, not the Turkish – Greek divide but an economic plan that will hit both sides equally hard and is worrying the high number of foreign residents too.

Cyprus is broke and a bailout deal arranged with the EU and IMF of 10 billion Euros, is going to place a levy on bank deposits as well.

This means that everyone who has a bank account with less than €100,000, has to pay a one off tax of 6.75% immediately lifted from their account.

For people with bank accounts containing over €100,000 the percentage rises to 9.99%!

The people of Cyprus are understandably dismayed by this deal and there has already been a run on the banks as savers clamour to withdraw their savings.

The President, Nicos Anastasiades seems caught between a rock and a hard place.

Cyprus needs this bailout to avoid bankruptcy, yet the terms of the bailout insists on this levy and it seems very unfair, according to the people of Cyprus.

This new bailout is the first to have stipulated these conditions and Greece, Spain and Ireland have all received large bailouts, which did not come with these strings attached, so why Cyprus?

The bailout deal has not yet been accepted. It requires Parliamentary approval and it remains uncertain which way the vote will go.

For outsiders looking in, it seems that Cyprus really does not have any choice. Without the bailout, bankruptcy looks certain.

It may be unfair that the people on the street are going to have to pay for this economic balls-up with their own hard-earned savings but perhaps it will set the tone for future EU interventions?

The Euro money pot is not a bottomless pit and all the European partners are undergoing serious economic problems of their own. Perhaps they simply cannot afford to continue paying for Europe in the same way?

For now, it is easy to see why Cyprus is so aggrieved. Speaking to the BBC, Cypriot opposition leader Stelios Kiliaris said, “I share the view of the people in the street that our partners in the euro group have treated us extremely unfairly.”

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The Dummies Guide to the Cypriot Economy