Cyprus’s Molon Labe Moment
Cyprus is another economic contagion Eurozone members are seeking to mollify. Facing national bankruptcy, the Mediterranean island nation has few options. The financial sector of Cyprus is nearly eight times the size of the economy. Eurozone officials developed a unique package to salvage Cyrus’s popular banking industry. The proposed bailout would help save the country’s financial sector, but the long-term damage would negatively affect the banking industry. In a drastically different approach from previous country bailout programs, Eurozone finance ministers demand Cyrus’s bank depositors forfeit a percentage of their deposits. In return, Cyprus would receive a €10 billion bailout.
To be precise, the bailout proposal levies on deposits are 9.9% for deposit accounts greater than €100,000 and 6.7% on anything below that threshold. Depositors would be compensated with bank shares, taking bank equity risk. In addition, the levy does not apply to Cypriot banks overseas.
Capital flight among EU periphery nations is a major risk.
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