Q&A: What happens next in Cyprus bailout vote?
Monday 18 March 2013
Q: Why does Cyprus need a bailout?
A: Before the financial crisis Cypriot banks grew rapidly, lending large amounts of money to borrowers in Greece – and buying significant chunks of Greek government debt. Two years ago the IMF estimated Cypriot banks’ combined assets were more than seven times larger than Cyprus’s entire GDP. When Greece went into freefall and imposed a ‘haircut’ on its creditors, Cyprus took a big hit.
Q: So why didn’t the government just nationalise the banks, like we did with Northern Rock?
A: Precisely for the reason above. Cyprus was affected by the economic slowdown like everybody else, and its government could not afford to buy them out. The markets also saw its exposure to Greece and raised its borrowing costs accordingly.
Q: So why does the EU want to make Cypriot savers pay?
A: Bailouts always come with strings attached, be they tax rises, austerity – or in this case, a tax on savings. The deal would require anyone with more than €100,000 in savings to pay almost 10 per cent, and anyone with less to pay 6.75 per cent. This was agreed due to the huge amount of deposits in Cypriot banks being from overseas clients – in many cases from dubious Russians suspected of money-laundering. Unfortunately for ordinary Cypriots, they’ve been hit too.
Q: What happens if Cyprus votes against the deal?
A: It’s not certain. Either the conditions are eased, or Cyprus defaults on its debts, leaves the euro and looks for other sources of finance – which, ironically in this case, may be Russia.
- 2 The West has it totally wrong on Lee Kuan Yew
- 3 Watch: Man takes selfie every mile of 2,600 mile hike, creates amazing timelapse video
- 4 The day I starred in Only Fools and Horses
- 5 Scientists have discovered a simple way to cook rice that dramatically cuts the calories
Germanwings plane crash: Andreas Lubitz 'had eyesight problems' and woke from nightmares 'screaming we’re going down'
Saudi Arabia says it won't rule out building nuclear weapons
The battle for the Middle East's future begins in Yemen as Saudi Arabia jumps into the abyss
Jeremy Clarkson 'could be given minder' ahead of a potential Top Gear return
Zayn Malik's departure from One Direction shows the perils of fame in the age of social media
Ukip supporters are 55 or older, white and socially conservative, finds British Social Attitudes Report
JK Rowling responds to fan tweeting she 'can't see' Dumbledore being gay
Jeremy Clarkson sacked live: Alan Yentob 'wouldn't rule out' ex Top Gear host's BBC return
Revealed: Putin's army of pro-Kremlin bloggers
The West has it totally wrong on Lee Kuan Yew
Germanwings plane crash: Co-pilot Andreas Lubitz wanted to 'do something people would remember him for'
£6 per hour: Recruitment Genius: This is an exciting opportunity to join a gro...
Negotiable: Recruitment Genius: A Service Delivery Manager is required to join...
£12000 - £24000 per annum: Recruitment Genius: A opportunity has arisen for a ...
£32000 - £38000 per annum: Ashdown Group: A successful accountancy practice in...