You’d be pretty upset, wouldn’t you? So were many citizens of Cyprus, whose government announced last Friday it would be assessing a 9.9 percent “stability levy” on all deposits of more than $100,000 and a 6.75 percent levy on deposits less than that. Cypriots quickly deduced that the government was seizing their property to bail out their nation’s banks and immediately tried to withdrawal their funds. To prevent them, the government of Cyprus has declared a bank holiday that has been extended through at least Wednesday.
The Cyprus crisis began last spring when the face value of Greek debt was cut after that government was bailed out last spring. Cyprus banks, which have longstanding cultural ties with Greece, carried substantial exposure and lost billions. Cyprus Popular Bank alone had $3.4 billion in Greek government debt, whose value was reduced to $2.5 billion. Cyprus was forced to nationalize that bank last November, and things haven’t gotten any better since.
Like the rest of the European Union, Cyprus has been mired in recession since 2011. Its government has been seeking a bailout from its EU partners since last June. But EU member nations, especially Germany, are tired of bailing out their spendthrift neighbors, especially ones like Cyprus, where the banking sector was recently measured to be eight times as large as the entire Cypriot economy.
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