.
The 2012–2013 Cypriot financial crisis is a major economic crisis in the Republic of Cyprus that involves the exposure of Cypriot banks to the Greek debt haircut, the downgrading of the Cypriot economy into junk status by international rating agencies and the inability of the government to refund its state expenses.[1][2]
Customers of the Bank of Cyprus, 18th March 2013
Causes
Cypriot debt compared to Eurozone average
Cyprus's debt percentage compared to Eurozone average since 1999
In September 2011, the credit rating of Cyprus was downgraded by all major credit rating agencies following the Evangelos Florakis Naval Base explosion in July 2011 which occured in a period of slow progress of the fiscal and structural reforms. At the same time yields on its long-term bonds rose above 12%. Despite its low population and small economy Cyprus has a large off-shore banking industry that was shaken to its foundations during the financial turmoil. With a total nominal GDP of €19.5bn ($24bn)[3] the country was unable to stabilize its banks, which had amassed €22 billion of Greek private sector debt and were disproportionately hit by the haircut taken by creditors.[4][5][6]
A report published in April 2012 by a team of 16 cypriot economists organized by citizens group ΕΛΕΥΘΕΡΙΑ (FREEDOM) attributes the causes of the crisis to sliding competitiveness and increasing public and private debt that were exacerbated by the banking crisis.[7]
Since January 2012, Cyprus has been relying on a €2.5bn emergency loan from Russia to cover its budget deficit and re-finance maturing debt. The loan has an interest rate of 4.5% and it is valid for 4.5 years,[8][9] It was originally expected that Cyprus would be able to fund itself again by the first quarter of 2013.[9] However, on 13 March 2012 Moody's slashed Cyprus's credit rating to Junk status, warning that the Cyprus government would have to inject more fresh capital into its banks to cover losses incurred through Greece's debt swap. On 25 June 2012, the day when Fitch downgraded bonds issued by Cyprus to BB+, which disqualified them from being accepted as collateral by the European Central Bank, the Cypriot government requested a bailout from the European Financial Stability Facility or the European Stability Mechanism.[6]
Request for intervention and agreement
The Cypriot Government was reported requesting a bailout from the European Financial Stability Facility or the European Stability Mechanism on 25 June 2012, citing difficulties in supporting its banking sector from the exposure to the Greek debt haircut.[10] Representatives of the Troika (the European Commission, the International Monetary Fund, and the European Central Bank) arrived to the island in July for investigation over the financial problems of the country and submitted the terms of the bailout to the Cypriot government on 25 July.[11] The Cypriot government expressed disagreement over the bailout terms, and continued negotiation with Troika representatives concerning possible alterations to the terms throughout the following months.[12][13] On 20 November the government handed its counter-proposals to the Troika on the terms of the bailout,[14] with negotiations continuing. On 30 November it was reported that Troika and the Cypriot Government had agreed on the bailout terms with only the amount of money required for the bailout remaining to be agreed upon.[15] The bailout terms were made public on 30 November.[16] They include strong austerity measures, including cuts in civil service salaries, social benefits, allowances and pensions and increases in VAT, tobacco, alcohol and fuel taxes, taxes on lottery winnings, property, and higher public health care charges.[17]
Reactions to austerity measures
Members of ERAS outside of the House of Representatives in Nicosia
Cyprus has seen a number of reactions and responses towards the austerity measures of the bailout plan. On 8 November 2012, ERAS (Committee for a Radical Leftist Rally, Επιτροπή για μια Ριζοσπαστική Αριστερή Συσπείρωση) organised the first protest against austerity and the Troika negotiations that were still taking place.[18] Protesters were gathered outside the House of Representatives holding banners and shouting slogans against austerity. Leaflets with alternative proposals for the economy were distributed in the protest, with proposals including the nationalization of banking, the reduction of the army and the freezing of the army budget, and the increase of the corporate tax. Members of the New Internationalist Left (NEDA) also participated in the protest.[19]
On 14 November the New Internationalist Left organised an anti-austerity protest outside the Ministry of Finance in Nicosia together with the Alliance Against the Memorandum. In the protest NEDA gave out leaflets, which expressed the view that "the EU is trying to burden the workers with the debts from the collapse of the bankers" and that "if this happens, the Cypriot economy and the future of the new generations will then be mortgaged to local and foreign profiteers and usurious bankers".[20]
Contract teachers protested outside the House of Representatives on 29 November against austerity measures that would leave 992 of them without a job next year. The teachers stormed the building and bypassed the policemen, entering the parliament. The teachers shouted against the banks and poverty.[21]
A protest by investors was staged on the morning of 11 December outside the House of Representatives, with protesters again storming parliament and bypassing the police. The storming of the parliament led to the interruption of the discussions of the parliamentary committee of customs. The protesters were asked to leave so that the committee could continue its work, and the protesters left half an hour later.[22]
A number of protests took place on 12 December. Members of large families protested outside the House of Representatives against cuts in the benefits given by the state to support large families. Protesters threw eggs and stones at the main entrance of the parliament, and a number of protesters tried to enter the building, but were blocked by the police force that arrived to handle the protest. It was reported that a woman fainted during the incidents. The protesters shouted for the MPs to come out but no response was given.[23] The protesters were joined by members of KISOA (Cypriot Confederation of Organisations of the Disabled, Κυπριακή Συνομοσπονδία Οργανώσεων Αναπήρων), who marched from the Ministry of Finance to the House of Representatives to protest against cuts in benefits for people with disabilities.[24] Later in the day members of public school teachers' trade unions protested outside the Ministry of Finance against the cuts in education spending which could resulted in the firing of teachers.[25] The unions staged another protest the next day near the House of Representatives.[26]
EC/ECB/IMF deal
On 16 March 2013, the EU and IMF agreed a €10 billion deal with Cyprus,[27] making it the fifth country—after Greece, Ireland, Portugal and Spain—to receive money from the EU-IMF. As part of the deal, a one-off bank deposit levy of 6.7% for deposits up to €100,000 and 9.9% for higher deposits, was announced on all domestic bank accounts. Savers were due to be compensated with shares in their banks.[28] Measures were put in place to prevent withdrawal or transfer of moneys representing the prescribed levy.[29]
The deal required the approval of the Cypriot parliament, which was due to debate it on 18 March. According to President Nicos Anastasiades, failure to ratify the measures would lead to a "disorderly bankruptcy" of the country.[28]
The Russian government "blasted Cyprus's bank levy, piling more pressure on Nicosia" ahead of the parliament's vote on the bailout. Russia had not decided at the time whether to extend its existing loan to Cyprus.[30]
The deal was rejected by the Cypriot parliament on 19 March 2013 with 36 votes against, 19 abstentions and one not present for the vote. [31]
See also
References
^ "Cyprus asks EU for financial bailout – Europe". Al Jazeera English.
^ "Cypriot banks in the aftermath of the Greek haircut". The Cyprus Lawyer. 26 October 2011.
^ "Cyprus". International Monetary Fund. Retrieved 18 April 2012.
^ Stephen Castle; David Jolly (12 June 2012). "Rates on Spanish Bond Soar". The New York Times. Retrieved 12 June 2012.
^ "Eurozone crisis live: Spain told to cut harder as Greek deal approved". The Guardian. 13 March 2012. Retrieved 13 March 2012.
^ a b James Wilson (25 June 2012). "Cyprus requests eurozone bailout". Financial Times. Retrieved 25 June 2012.
^ Η τριλογία της αποτυχίας μας, in Cyprus daily newspaper Φιλελεύθερος, 9 Sep 2012, economics section, page 1.
^ "Russia loans Cyprus 2.5 billion". The Guardian. 10 October 2011. Retrieved 13 March 2012.
^ a b Hadjipapas, Andreas; Hope, Kerin (14 September 2011). "Cyprus nears €2.5bn Russian loan deal". The Guardian. Retrieved 13 March 2012.
^ "Cyprus asks EU for financial bailout – Europe". Al Jazeera.
^ "Shiarly: troika will be here very soon". Cyprus Mail. 2 November 2012.
^ [1][dead link]
^ [2][dead link]
^ "Troika handed compromise proposals". Cyprus Mail. 21 November 2012.
^ Tugwell, Paul (30 November 2012). "Cyprus, Troika Agree Bailout Terms, ECB Demetriades Says". Bloomberg.
^ "Bailout deal made public". Cyprus Mail. 1 December 2012.
^ "Microsoft Word - Cyprus MoU 29 Nov to EWG.doc" (PDF).
^ BDigital Web Solutions. "Την Πέμπτη η πρώτη εκδήλωση διαμαρτυρίας κατά του Μνημονίου | Κύπρος | Η ΚΑΘΗΜΕΡΙΝΗ". Kathimerini.com.cy.
^ "Συγκέντρωση διαμαρτυρίας από την ΕΡΑΣ κατά του μνημονίου και της Τρόικας μπροστά από τη Βουλή". Onlycy.com.
^ http://www.philenews.com/el-gr/Eidiseis-Kypros/22/122786/ekdilosi-diamartyrias-kata-ttis-troikas-exo-apo-to-ypoik
^ BDigital Web Solutions (29 November 2012). "Σοβαρά επεισόδια σε Βουλή-ΥΠΟΙΚ με τους εποχιακούς ωρομίσθιους | Κύπρος | Η ΚΑΘΗΜΕΡΙΝΗ". Kathimerini.com.cy.
^ "Επεισόδια έξω από τη Βουλή (φωτο+βίντεο)". Sigmalive.com.
^ "Συμπλοκές στη Βουλή στη διαμαρτυρία των πολυτέκνων(βίντεο) | News". Sigmalive.com.
^ "Στους δρόμους και οι ανάπηροι". Sigmalive.com.
^ "Αντιδρούν και οι εκπαιδευτικές οργανώσεις | News". Sigmalive.com.
^ "Υπό δρακόντεια μέτρα η διαδήλωση των εκπαιδευτικών". Sigmalive.com.
^ "Eurozone agrees to €10bn bailout package for Cyprus while Cypriots voice anger over deposits levy". Raidió Teilifís Éireann. 16 March 2013. Retrieved 16 March 2013.
^ a b "Cyprus bailout: Parliament postpones debate". BBC News. 17 March 2013.
^ "Cyprus eurozone bailout prompts anger as savers hand over possible 10% levy: Angry Cypriots try in vain to withdraw savings as eurozone bailout terms break taboo of hitting bank depositors". The Guardian. Reuters. Retrieved 16 March 2013.
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