Cyprus economy a warning for other countries

Columnist and Columnist

After two weeks of the nation’s banks being closed, Cyprus opened its banks again after facing a financial meltdown that nearly crashed the small island country’s economy. Receiving a bailout from the European Union and the International Monetary Fund, Cyprus is expected to contribute some of the money in which they received in order to stabilize their economy.

Along with the banks being shut down for nearly two weeks, Cyprus is also facing limitations put on them by the capital. These limitations placed include placing a limit on how much money can be withdrawn from the banks per day, per account. This limit of $390, along with a monthly limit all together. These limits prevent a rush on the banks, which if that were to happen, would definitely crash the economy. Anyone traveling out of the country will also be unable to withdraw or charge anything over $3,800 a month.

Capital control is when restrictions such as what is happening in Cyprus, are placed on citizens and the money that is in the banks. These restrictions, placed by the government, prevent money from being moved around freely, like before. This is why the banks being closed for nearly 10 weeks, along with the restrictions on how much money can be pulled out at once.

These limitations placed on the citizens of Cyprus are part of the bailout plan with the creditors who are keeping the country from complete and utter economic failure. Any unprotected accounts with more than $130,000 in them will have 40 percent of the money taken away in order to pay for the bailout the country is facing. Along with these measures and actions taking place, the second largest bank will be shut down, and the accounts moved to two different banks, depending on the financial status of these accounts.

What caused the crisis in Cyprus? When Greece had their bailout not too long ago, Cyprus had a hand in taking care of their fellow country. In 2010, after Greece’s own economy started to show the strain it was in with the inability to meet its own debt, which was caused by weaknesses in Greece’s economy. Cyprus took Greek bonds while also being harmed by the debt that had been moved around. Cyprus took some of the debt, and is now suffering from their actions.

Three years later, Cyprus is facing a crisis similar to what happened in Greece, but is not getting the same treatment from the EU and IMF. While the EU wiped away Greece’s debt along with plans to rebuild Greece’s economy with heavy counseling. But the plan of action for handling the crisis in Cyprus is different than with Greece.

While both the EU and the IMF are going to give money to help with the national debt, about $25,681,900,000 billion, while Cyprus has to fund about $10,574,900,000 billion.

While other countries have been able to avoid the bailouts, Cyprus is the unfortunate one to have the experience of needing to be bailed out. With their bailout, Cyprus became the first country to bring capital controls in order to prevent a mass exodus of money leaving the country. In times of uncertainty if one’s money is not going to be safe within the banks, people will empty their accounts, which the banks cannot handle.

While one crisis was avoided by closing the banks, Cyprus has a long way to go in fixing their debt crisis along with providing an example to other countries who are struggling to keep their heads above water with the debt crisis. Between the real estate crisis a few years ago, the overall value of the euro, and countries within the EU believing they can borrow beyond their means, have all harmed their economic structure. With time and a lot of effort, these countries might be able to hold their heads above water eventually, but for now, they’re perpetually drowning in debt.

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