Cyprus Financial Crisis
March 23, 2013 by staff
Cyprus Financial Crisis, Cyprus’ leaders are grasping for a new bailout plan to save their country from financial collapse. After Cypriot lawmakers rejected a $13 billion European bailout because it included a controversial tax on savings accounts in Cypriot banks, Russia, where many of the banks’ wealthiest depositors live, rejected the Mediterranean island nation’s pleas for help. The one-time levy would have raised $7.5 billion that Europe is demanding to help fund the rescue. Now the European Union is threatening to let the country go under if it doesn’t come up with a new plan by Monday.
The country’s leaders are determined to find a solution. “The coming hours will seal our fate,” a government spokesman said. “The country must be saved.” Whatever happens, Cyprus might be serving as a cautionary tale that, rather than threatening to hurt the U.S. economy, can teach Americans valuable lessons. Here are three of them:
“Cyprus will pay dearly for its sins,” says Hugo Dixon at The New York Times. This is a country that keeps making the same mistake. “The Cypriots seem congenitally inclined to overestimate their negotiating position.” They rejected the United Nations’ plan in 2004 for uniting their island, divided in two since a 1974 Turkish invasion. The last Communist government did nothing to shore up Cyprus’ finances, thinking itself immune as “the crisis in Greece threatened to swamp Cyprus.” Then the new center-right president, Nicos Anastasiades, “managed to turn a crisis into a disaster” by thinking he could go along with the plan to impose an automatic 6.75 percent tax on insured depositors.
When the president found he couldn’t sell the deposit grab to his people, he backtracked. There was jubilation in the streets. How quickly the mood has changed now that lines have started forming outside cash machines.
The Cypriot government then asked Russia for help. But again Nicosia overestimated its negotiating position. Moscow wasn’t interested in buying a bankrupt bank or lending more money. [New York Times]
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