Preview

Cyprus Financial Crisis

Powerful Essays
Open Document
Open Document
1809 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Cyprus Financial Crisis
I. Introduction

With a population of only 1 million and no more than half a percent of Euro zone economy, it is surprising to find out that the financial crisis in a tiny country called “Cyprus” has enormous global implications (Long 2013). It cannot be also denied that the “Subprime Mortgage Crisis” of the US in 2008 has its downbeat domino effect to the world including European Union and Cyprus. In this report, not only the most critical reasons but also the aftermath of Cyprus financial crisis and possible alternatives which could have been done to ease such economic downturn will be carefully examined.

II. Body

1. Main Reasons

The root of the crisis lies when Cyprus experienced a terrible recession in 2009 when the country’s economy was diminished by 1.67% including significant reduction in tourism and shipping which obviously caused high unemployment rate (CIA 2013). Since then, the country’s economy worsen and with the 30% decline of the real estate market has put enormous pressure on a rise in non-performing loans of banking system (The World Bank 2013). Therefore, the banks ended up with Greek Private Sector debt of Euro 22 billion and accumulated $120 billion inclusive of $60 billion from Russia according to Jolly and Castle (2012).

Furthermore, it is the direct result of the crisis in Greece known as Greek Debt Crisis where the second biggest retail bank in Cyprus over-invested in Greek Bonds and as a result of this, Cyprus failed on its recapitalisation where the Government is left with limited time and option as mentioned in Aljazeera news podcast (2012). Besides, Hans Humes pointed out during an interview conducted on 21 February 2012 that one of the significant reasons that led to a threat in collapse of the Cyprus Banks is 50% haircut in 2011 during Greek Crisis. Next, Cypriot Banking system is in shortage of at least 10 billion Euros in new capital plus 8 billion to satisfy public debts (Long 2013) and to make matter worse, the

You May Also Find These Documents Helpful

  • Powerful Essays

    Kentikelenis A, Karanikolos M, Papanicolas I, Basu S, McKee M, Stuckler, D 2011. Health effects of financial crisis: Omens of a Greek tragedy. The Lancet 378 (9801): 1457-8.…

    • 12784 Words
    • 52 Pages
    Powerful Essays
  • Good Essays

    International Monetary Fund 2008, ‘Europe: addressing the crisis’, Regional Economic Outlook: May 2009, p. 19-20.…

    • 885 Words
    • 3 Pages
    Good Essays
  • Best Essays

    The financial headlines of 2012 were prevalent with the tribulations of the Greek economy. Its problems, in the eyes of many of the other nations of the euro zone, were not only negatively impacting the prosperity of the Greeks, but also the viability of the European Union. The country as a whole requires a major restructuring. Not only are drastic changes needed in financial and economic policies, but the Greeks need to understand their attitude of government entitlements cannot be sustained. The mismanagement of the Greek economy is also evident in its place in the global market community. It has not found the path that a county needs to follow to become an active member of the vibrant, high growth world of globalization.…

    • 2413 Words
    • 10 Pages
    Best Essays
  • Good Essays

    European Union

    • 478 Words
    • 2 Pages

    Although they tried to build harmony among themselves that is essential for them to avoid violence and helps to bond a strong political relation among each other .However , various level of social and economic growth as well as the change in values ,principles and political situation between members are the chief causes of discord among them. The current discord among European union (EU) which is one of the biggest financial and political union ,could be the regional economic combination which has been hindered the free trade of some countries across the EU. By local economic integration in today’s globalization, contracts among countries in a geographic region to attain economic improvements from the free movement of trade and investment among themselves (Hill, 2013). The Eurozone is obviously having a decline, unless a new wave of crisis. The London Financial Times states that, an 11 billion euro has been originated in the program for saving the Greek economy. The publication conditions that before the end of this year, the governments of the European nations which are the central holders of Greek debts want to allot an average half of that amount to the Greek government. Or else…

    • 478 Words
    • 2 Pages
    Good Essays
  • Powerful Essays

    Minsky model

    • 3797 Words
    • 16 Pages

    Since the end of the Great Depression “…financial failure has been more extensive and pervasive” in the 30-year period 1980 to 2010 than at any other time leading up to the present day (p. 7). Four financial crises occurred in this 30-year period. The closest in time of the four financial crises to the present period is the recent liquidity crisis, the so-called Great Recession of 2007 – 2009, beginning in the United States, Great Britain, Spain, Ireland and Iceland. Eventually all of the countries of the Eurozone succumbed to the disequilibria of the Great Recession with the Eurozone’s suffering further intensifying because of the emergence of the so-called Sovereign Debt Crisis, a sub-crisis morphing out of the Great Recession in 2010 and 2011, involving Greece, Portugal, Spain, Italy and Cyprus. The Sovereign Debt Crisis is still ongoing having recently extended itself into calendar year 2013.…

    • 3797 Words
    • 16 Pages
    Powerful Essays
  • Powerful Essays

    ARC model in euro crisis

    • 3001 Words
    • 13 Pages

    Compared with the worldwide financial crisis happened since 2008, the European sovereign debt crisis has been the most serious problem for the ECM. This crisis, also called “the Euro Crisis”, has been regarded as the most serious financial crisis at least since 1930s. This crisis began with the Greek fiscal crisis in the autumn of 2009, and then it evolved into the “PIIGS Crisis”—five main European countries namely Portugal, Italy, Ireland, Greece and Spain were not able to gain enough economic growth in order to pay their debt obligations, and this is why it’s called sovereign debt crisis. Just about half a year before, a massive unexpected bank run happened in Cyprus, which shocked the world. Many scholars, such as Gunther Schnabl (2013), explain the crisis from a perspective of policy problem on balance sheet, so this essay would analyze the euro crisis from accounting ACR concept. This essay begin with the definition of ARC and the introduction of the Euro Crisis; then, the causes of this crisis will be analyzed from the ARC perspective; next, two countries, Germany and Greece, will be cited to illustrate the performances of two different types Euro countries when crisis happens; subsequently it will give some suggest and comes to a conclusion finally.…

    • 3001 Words
    • 13 Pages
    Powerful Essays
  • Powerful Essays

    Christian Banking Crisis

    • 1476 Words
    • 6 Pages

    The current crisis of banking system in Cyprus had raised difficult moral dilemmas for Cypriot government, members of Euro Union and other affiliated governments. Cypriot banks became unable to secure the deposits due to several reasons: the Greek crisis, crisis in real estate sector. It provided relatively high income on deposits, which is always associated with risky investments. The macroeconomic situation in the world only worsened the situation. To sum up, the some of the banks…

    • 1476 Words
    • 6 Pages
    Powerful Essays
  • Satisfactory Essays

    Cyprus Crisis

    • 283 Words
    • 2 Pages

    European Union bailout Cyprus with 10 billion euro on Monday. Part of agreement was that Cyprus second largest bank, Popular Bank, would be closed. As well as new tax plan for Bank of Cyprus. All banks have been shut since March 16th, they’re planning to reopen them on Wednesday, March 28th. Over the weekend, there was a withdrawal limit of 100 euro on ATM, but it didn't stop from emptying them. Part of new agreement includes that any assets more than 100,000 euros is being frozen. Right now its unknown what will happen to those assets, but there is a chance that they might lose everything at Popular Bank, and be forced to swap %30 to %40 of their deposits for shares at Bank of Cyprus. Chairman and directors of the Bank of Cyprus were offered to resign. Cyprus promised to protect any deposits less than 100,000 euros. New heavy taxes will apply on deposits more 100,000 euros. According to the data from Bank of Cyprus, there was 68 billion euros on the end of February in Cyprus. Around 1/3 of all deposits comes from foreign investors, most of them (18 billion euros) belongs to Russians. In January 2012, Cyprus got an emergency loan of 2,6 billion euros from Russia, and it was expected that they would be able to fund themselves again in begging of 2013. Right now, Russians looking for alternatives on where to keep their money, some source stating that the new destination will be Hong Kong.…

    • 283 Words
    • 2 Pages
    Satisfactory Essays
  • Powerful Essays

    European Debt Crisis

    • 2361 Words
    • 10 Pages

    The “Greek financial crisis” revolves around the fact that the nation has a high level of debt and accompanied by a high probability of default. The story of the Greek financial crisis obviously coincides with the current global economic crisis; however, the events in Greece are unlike the financial events that have plagued the rest of the world. The story is twofold in that the Greek government is to blame for fraud and their poor financial practices, as well as the ECB for enabling such practices by making the cost of borrowing so low due to Germany and other more stable Eurozone nations.…

    • 2361 Words
    • 10 Pages
    Powerful Essays
  • Best Essays

    The Eurozone crisis

    • 3510 Words
    • 9 Pages

    The Eurozone crisis was not caused by a single factor, it was the result of a compound of errors made by member states in different sectors of the European economy. There are three causes that have been identified as directly leading to the crisis. The problems of competitiveness, debt and the lack of a comprehensive growth model. There are several other causes, but the problems of Greece mirror the problems of the rest of the Eurozone. In order to fully evaluate and understand the causes of the Eurozone, it is necessary to first look at the way Greece’s debt rose to 112.9% of its Gross Domestic Product (GDP) by 2009. This was the first asymmetric shock in the Euro, but it wasn’t seen as cause for concern at the time it was revealed. Another major issue that needs to be evaluated is the blatant ignorance of the rules of the Maastricht treaty rules about deficit spending and sovereign debt. This laid a poor foundation for the financial stability of the European Monetary Union (EMU) and its ability to absorb asymmetric shocks. There are doubts about whether or not Europe is an optimal currency area and what makes an optimal currency area, economists have argued over this for some time. The OCA will be evaluated in more detail in this essay. There are a lot of lessons to be taken away from the Euro Crisis, lessons that could help prevent future crises arising from asymmetric shocks, some of these lessons will be evaluated in this essay. Throughout this essay, references will be made to the Greek debt crisis as a case study for the wider issues in the Euro crisis.…

    • 3510 Words
    • 9 Pages
    Best Essays
  • Best Essays

    The Greek Financial Crisis

    • 3395 Words
    • 14 Pages

    Ever since the end of 2009, Greece has been involved in a financial and economic crisis that has been record breaking and shattered world records in terms of its severity and worldwide effects. The Greek government, since the beginning of the crisis, has attempted to take several governmental measures to try and “stop the bleeding,” including economy policy changes, dramatic government spending and budget cuts and the implementation of new taxes for citizens. In addition to this, the government has tried to alter the perceptions of Greek government and economy by the rest of the world in an effort to appear both more liberal and more democratic. Greece has also been working to privatize many previous state-owned corporations in a desperate effort to stabilize the currency and the economy. This paper will address the various actions taken to date by the Greek government to pull the country out of this terrible crisis, and will explore the specific factors that were causation for this horrible financial crisis. It is important to note that certain policies and government actions and their success is merely subject to personal opinion, but financial data and statistics is absolute and cannot be disputed regardless of personal or political beliefs.…

    • 3395 Words
    • 14 Pages
    Best Essays
  • Better Essays

    Newpaper Article

    • 848 Words
    • 4 Pages

    Greece 's economy was hit by the global financial crisis of 2008. But by 2009, it was clear that it could not handle its government debt load and the country teetered on the brink of bankruptcy in 2010.…

    • 848 Words
    • 4 Pages
    Better Essays
  • Good Essays

    To expand on this proposal let us apply it to the recent bailout received the government of Cyprus to protect its…

    • 476 Words
    • 2 Pages
    Good Essays
  • Satisfactory Essays

    Azerbaijan Position Paper

    • 418 Words
    • 2 Pages

    Since 2009, Greece has been perplexed by debt crisis so far. The investors concerned Greece’s ability to repay the debt, and in 2010, the downgrading of Greek government debt to junk bond. This reform astonished the whole financial markets. Greece had the first bailout loan in 2010 and started the austerity policies. The large sum of bailout loan didn’t remain a long time, due to the fact that the growth of the Greek economy worked too slowly, Eurozone leader agreed to offer Greece the second bailout loan in 2011.In August 2013, IMF (International Monetary Fund) pointed that Greece is close to getting the third bailout found, and this time Eurozone’s other creditors might need to ratify this case. Without others ratification, the economy problem in Greece would be even serious. However, German urges to end austerity policies and considers that the voice of against will increase if Greece still follows the austerity policies to win the bailout, and this conduct would cause more and more social unrests.…

    • 418 Words
    • 2 Pages
    Satisfactory Essays
  • Powerful Essays

    Fiscal Crisis

    • 3424 Words
    • 14 Pages

    Sovereign debt, it is point that sovereign state use the national reputation as a guarantee and through the issuance of bonds, and other methods to the international community have borrowed money. Because most sovereign debt in foreign currencies to international organizations, foreign government or international loans from financial institutions. Therefore, once the debt national credit rate was turn down, a sovereign debt crisis will be product. On December 11, 2009, the Greek government disclosed its public debt was as high as 300 billion euros. It was more serious than previously published. Affected by this, the three global credit rating agencies collectively cut Greece's sovereign credit rating. Thus light the fuse Europe sovereign debt crisis. With the eurozone sovereign debt crisis spreads, the eurozone country sovereign debt problem has already become the current global hot topic.…

    • 3424 Words
    • 14 Pages
    Powerful Essays