Cyprus: the latest sequel in the eurozone bailout series

Anna Sonny, 22 March 2013

Cyprus is the most recent country to seek a bailout in what seems like a never ending sequence of financial disasters in Europe.

Last week eurozone finance ministers proposed a levy of 9.9% on savings deposits of over €100,000 euros and 6.75% on those between €20,000 and €100,000 to raise the money for a bailout agreement. The Cypriot Parliament rejected this proposal on Tuesday, Russia has refused to help and just as we have previously seen with Portugal, Spain, Ireland and Greece, the Cypriot government is now scrambling to find the money to reach a deal before the European Central Bank cuts off funds to the Mediterranean island on Monday.

Cyprus is the third smallest economy in the eurozone, but its economic troubles have managed to bring the region to the brink of crisis; if it exits the economic area, the eurozone could certainly collapse. Two key factors that led to Cyprus’ problems are the massive loans made by the banks and having to suffer the effects of Greece’s economic meltdown. And now the story is the same; the public will be expected to bear the brunt of the cuts, while the private bondholders who risked lending to the banks in the first place will not. The austerity will hurt.

This is the problem with an economic and monetary union in which countries are tied to the death. One disaster sends shockwaves through the entire economic area and the disasters play out in much the same way; efforts to rescue the eurozone so far have been like trying to pour water into a bucket that is riddled with holes.

In 2011, during the turbulence of all the bailout demands, British Chancellor George Osborne described Britain as a ‘safe haven’. There were no such bold claims in his budget speech on Wednesday, only a blunt warning: ‘I will be straight with the country: another bout of economic storms in the eurozone would hit Britain’s economic fortunes hard again.’ If a tiny island can trigger another tempest, is anyone safe?