2012–2013 Cypriot financial crisis
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The 2012–2013 Cypriot financial crisis is a major economic crisis in the Republic of Cyprus that involves the exposure of Greek Cypriot banks to the Greek debt haircut, the downgrading of the Greek Cypriot economy into junk status by international rating agencies and the inability of the government to refund its state expenses.[1][2]
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[edit]Causes
In September 2011, the credit rating of Cyprus was downgraded by all major credit rating agencies following theEvangelos 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]
[edit]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, socialbenefits, allowances and pensions and increases in VAT, tobacco, alcohol and fuel taxes, taxes on lottery winnings, property, and higher public health care charges.[17]
[edit]Reactions to austerity measures
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 Representativesholding 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]
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]
[edit]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] This unprecedented move had been "strongly pushed" by the IMF.[citation needed] As a result, depositors queued at banks to withdraw their money, resulting in a bank run. Measures were put in place to prevent withdrawal or transfer of moneys representing the prescribed levy.[29]
The deal requires the approval of the Cypriot parliament, which is 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 has blasted Cyprus's bank levy, piling more pressure on Nicosia ahead of this afternoon's vote on the bailout. Russia has not decided yet whether it will extend its existing loan to Cyprus - giving Moscow plenty of leverage over the situation. [30]
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