Recently, news and media reported that the small nation of Cyprus, under the Euro Zone, is currently facing financial difficulties and have spread through headlines all over the world. However, experts say that it would be wise to avoid panic and implying anything negative without knowing the overall Cyprus situation.
Christopher Pissarides, an economics and political science professor at the London School of Economics, says that Cyprus has a manageable fiscal deficit and still has a low debt. Its economy is capable because of its financial services and tourism economy. It also has a good resource depot for its rich gas and oil near its southern coasts.
Cypriot banks suffered greatly in 2011 when Greece cut out some of its private bond dealers and these banks took great losses that were sufficient. The Cypriot banks needed refinancing, which brought the country to ask for a bailout in 2012.
However, EU’s bailout plans sparked the ire of Cypriot banks and Cyprus’ Russian business partners. The country may have raised €5.8 billion to prevent increasing debt, but a bank levy of over 100,000 euros in banks and a smaller percentage on deposits of more than 20,000 left Cypriots panicking about their money.
The policies, while they continue to help Europe, are estimated by Christopher Pissarides to backfire against Europe sooner or later.