The Proposed Cyprus Bailout

The small island nation of Cyprus, off the coast of Turkey has been in the news of late, supposedly threatening, by its inaction, to shake confidence in the whole of the European Union (300 million people). To be honest, I haven't followed this whole sordid affair, so I'm definitely not an expert in the nuances of Cyprus' problems. But an article in today's paper contained some figures which were startling, to say the least.

Cyprus is home to one million people. They are seeking a $13 billion bail out from the European Union. Let's stop right there for a moment. In order to remain financially solvent, Cyprus needs a $13,000 bailout for every resident of their island. That would be quite a chunk change for the average American. I'd guess that for a European, it would represent an even higher percentage of their per capita yearly income. So in order for Cyprus to rise above its current economic crisis, every resident (including, presumably, children) would need to pony up $13,000.

Part of the solution proposed is to confiscate a certain percentage of the bank balances of depositors who have more than 100,000 Euros in the bank. This is, of course couched in more diplomatic language than I've used. Call it a tax if you like; it's still confiscation. This will yield only a fraction of the money needed for European regulators to release the $13 billion bailout funds.

Another point: imagine the per annum interest owing on this bailout package, even at today's meager interest rates. And Cyprus' credit rating is listed as "junk".

Without investigating any further, I'd make two observations. First, someone on that island is overspending at an incredible rate, to get the island into a situation where $13,000 is required for each resident, just to stay afloat. Second, after the government confiscates some percentage of high-dollar depositor bank accounts, would you ever put another dollar in a Cyprus bank again? Would you ever headquarter your business in such a country? As a business would you open a new office or franchise in such a place? And what might that mean for the future of such a tiny island nation with limited natural resources?

I suppose there's no need to wonder why nearly the whole world is in a global economic crisis.

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