March 18, 2013

Banks on the Mediterranean island of Cyprus did not open today and will remain closed until March 21 amid an accelerating financial crisis that has sent stock prices down on markets worldwide. Yesterday, the president of Cyprus, Nicos Anastasiades, announced that his government would receive a €10-billion ($13-million) financial bailout from the European Union (EU), the European Central Bank, and the International Monetary Fund. The president stated that with the Cyprian banking system on the verge of collapse, the country faces its worst crisis since the 1974 Turkish invasion. Cyprian banks invested heavily in Greek government bonds. Their value have been downgraded as Greece was forced into multiple bailouts to avoid default on its national debt.

Under the terms of the Cyrpian agreement, people with less than €100,000 ($130,000) in their bank accounts are to pay a one-time tax of 6.75 percent on their balances. Those with more than €100,000 will pay 9.9 percent. Most of the depositors who have more than €100,000 on account are Russian. In recent years, Russians have moved vast sums through banks on Cyprus, allegedly as part of money-laundering schemes. (Money laundering is a process that obscures the source of money obtained illegally.)

Nicosia is the capital and banking center of Cyprus. (© F1 Online/Alamy Images)

The Cyprus bailout follows those for Greece, Portugal, Ireland, and the Spanish banking sector. It is the first where bank depositors are to be taxed. German and Dutch officials have stated that from now on when a eurozone bank or member nations fails, bond investors and perhaps even bank depositors will be forced to share the loss. The one-time levy has sparked widespread public anger. Russian President Vladimir Putin has condemned it as “unfair, unprofessional and dangerous.”

Joerg Asmussen, a member of the European Central Bank’s governing council, stated today that there would be no objection to Cyprus altering the bailout terms. However, Cyprus will nevertheless be responsible for a €5.8-billion financial contribution, regardless of its source. Moody’s Investors Service, the New York-based credit ratings agency, warned that taxing individual bank accounts “signals euro-area policymakers’ willingness to risk triggering wider financial market disruptions in pursuit of other policy goals.”

Additional World Book articles:

• Crisis in the Eurozone (a Special Report)
• Economics, world 2010 (a Back in Time article)
• Economics, world 2011 (a Back in Time article)

June 20, 2012

Antonis Samaras, the leader of Greece’s conservative New Democracy Party, was sworn in as prime minister, heading a three-party coalition that is committed to upholding Greece’s bailout commitments. His New Democracy party joined forces with the leftist PASOK party and the smaller Democratic Left party. The formation of the new coalition government ended–at least for now–a protracted political crisis that threatened to plunge Europe deeper into financial chaos. New Democracy won recent parliamentary elections with 29.67 percent of the vote. The leftist Syriza party, which came in second, ran on its opposition to the terms of a bailout that kept Greece from defaulting on its national debt earlier this year. European officials had warned that failing to live up to the terms of the agreement could result in Greece’s expulsion from the eurozone.

In March, the European Union and International Monetary Fund loaned Greece 130 billion euros (172 billion dollars), but the conditions were severe. The agreed upon program of “austerity” was designed to drastically lower Greece’s national debt. This was to be accomplished by slashing public sector jobs, the minimum wage, and old-age pensions; it also called for Greece to privatize–that is, to sell off–such publicly owned assets as transportation and utility companies. According to many economists, the austerity program has, in fact, plunged Greece’s economy deeper into recession–pushing unemployment higher and depressing tax revenues. These economists also argue that austerity has dragged Greece even deeper into debt.

The Parthenon crowns Athens, the capital of Greece. (© Dagli Orti, The Art Archive)

While not rejecting the terms of the bailout, Samaras’s New Democracy party seeks to change it. However, both German Chancellor Angela Merkel and the German foreign minister have stated that the substance of the bailout agreement is “not negotiable,” though the “timeframe could be discussed.” Speaking in Athens, Greek political and economic analyst Theodore Couloumbis noted, “The crisis has been postponed, not necessarily averted. For this [latest] government to last it has to show results. You can’t continue with 50 percent youth unemployment and a fifth straight year of recession.”

Additional World Book articles:

• Bond
• Euro
• Economics 2010 (a Back in Time article)
• Economics 2011 (a Back in Time article)
• Greece 2011 (a Back in Time article)
• Crisis in the Eurozone (a special report)