Cyprus, officially known as the Republic of Cyprus has been appearing in the news a lot lately (for all the wrong reasons). The matter is entirely financial and since the jargon is not easily understood by many people, here are five things or easy facts to know what is going on exactly.
Before starting off, it would be adequate to mention that Cyprus borders with Greece and Turkey. It was a founding member of the Non-Aligned Movement and later joined the European Union in May 2004. In 2008, Cyprus joined Eurozone, an economic and monetary union of 17 EU member states.
1- Greek Economic Depression:
Apparently the Republic of Cyprus had made loans, a lot of them, to Greek borrowers and Cyprus’ property market prospered. Greece was going through economic depression and the value of the debts owed by the government of Greece was cut in a debt relief exercise last year. That might’ve helped Greece to an extent but it had a huge impact, negative mostly, on the Cypriot banks who had actually given the loans.
2- Pre- Global Financial Crisis Status And Eurozone Recession:
Cyprus was doing well before financial crisis hit the world in 2008. According to reports, the International Monetary Fund described the country’s pre-global financial crisis performance as “a long period of high growth, low unemployment, and sound public finances.”
However, in 2009 when recession hit the Eurozone, and ultimately Cyprus, its economic growth weakened and affected the government finances. Word spread about the weak financial status of Cyprus, making it almost impossible for the country to borrow money.
3- The Russian Connection:
There are many Russian companies registered in Cyprus for tax reasons. It even ranks as Russia’s biggest source of direct foreign investment. It favors both Cyprus and Russia, a mutual financial relationship. But a few days ago the government of Cyprus had agreed to confiscate “9.9 percent of the wealth of anyone holding more than 100,000 euros” (for the bailout deal) which angered many Russian clients because mostly they are the ones who have wealth over 100, 000 euros. This contributed even more to the woes of the Mediterranean island nation.
4- “Darkest Week In Cyprus’ History”
According to news reports, the people/government of Cyprus have regarded this past week as “the darkest week in their history since the 1974 invasion”. They know that even if they reach an agreement with European bankers, which they did eventually, it would take years and years to recover from the financial setback. People dread more loans and bailouts in future. They feel trapped.
5- Bailout Approved! But…
Although a 10 billion euro ($13 billion) of rescue loan has (just) been received by the Mediterranean island nation which has saved the country from bankruptcy, Cyprus cannot rejoice. The Cyprus Parliament president Nicos Anastasiades said that the last-minute negotiations and the secured package of loans is a “painful one” since the country now has to take some drastic measures. They have to shrink the banking sector, cut its budget and privatize state assets. The “worst” might have been avoided but the “worse” is yet to come.
Anastasiades even threatenedto resign during a heated exchange with European Union and IMF officials over a rescue package for his country, according to a senior official taking part in the negotiations on Sunday.
So these were some of the most important facts about the Cyprus bailout deal and a little background to help you understand why it all actually happened. It basically revolves around loans, banks, Greece and recession. For more information and updates, stay connected to our site.