With their banking system in shambles, the country of Cyprus proposed actions Wednesday that would secure the funds necessary to qualify for a bailout. How much is ‘necessary’ you ask? Oh, only €5.8 billion!
The proposition called for the nationalization of state-operated employee pensions as well as an emergency bond auction to help raise the €5.8 billion. This comes only a day after their Parliament rejected a similar bailout package calling for €10 billion. Money would also come from a divisive bank tax, which would hit all deposits of up to €100,000 with a 2% fee. Gone are the days of free and/or affordable banking in Cyprus. Deposits above the 100k threshold would be taxed a whopping 5%!
Meanwhile, the country’s finance minister traveled to Moscow to plead his case for additional economic relief. The Cyprioti banks are suffering as a result of past entanglements in Greece’s economic catastrophe. Since many of Russia’s wealthiest socialites possess accounts in Cyprus, you know they’ll be keeping a watchful eye on the situation as it continues to deteriorate.
In an effort to protect Cyprus from the international financial sharks that are starting to swarm the waters, the government has declared all bank branches closed until next Tuesday. All accounts have been frozen. What does this mean? It means people don’t have access to their money! It means they can’t pay their bills. They’ll default on loans, knocking over the first domino in the collapse of the European economy. (The rest of the world soon to follow)
Government officials have ordered ATM machines to remain operational and fully-stocked for those who still pay their bills via cash and courier mail. For the thousands of international corporations that already have accounts in Cyprus, this doesn’t help as much. The financial freeze means they can’t transfer money in between accounts, i.e. they can’t do business! And when corporations can’t do business, their stock price drops. When their stock price drops, rounds of employment cuts follow. When unemployment rises, further strain is put on the economy. When will it snap? How many people will be forced out of their jobs and into lines at the ATM before someone does something about it?
The Cyprioti government hopes to agree to terms with the International Monetary Fund, the European Central Bank and the European Commission on a relief plan by the re-opening of their banks on Tuesday. If the country fails to secure the bailout, “the damage would be enormous, and (they) would be at risk of collapse,” an undisclosed European official told the New York Times. Cyprus may even consider leaving the euro currency base altogether. According to that same official, the move would “spur chaos.”
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