In recent weeks he has been at the center of political debate and media attention, now Cyprus he will have to apply the agreement found, after prolonged negotiations, with the Troika.
The Cypriot crisis finds its basis in a double imbalance of the economic system of the island. In fact, not only is the entire Cypriot economy based almost exclusively on two sectors, tourism and finance, but even the latter has reached uncontrollable dimensions, exceeding the country's GDP by almost 5 times (similar report to the Irish one).
Much of the expansion of the financial sector is due to the status of offshore center that the country has taken on managing to attract in this way huge capitals from Russia and countries of the CIS area. The significant amount of liquidity in the Cypriot banking system has mostly been invested in Greek government bonds.
The start of the Cypriot crisis is therefore directly linked to theagreement signed by Greece in February last year (Private Sector Involvement; PSI) with which private investors have accepted a reduction of 53,5% of the value face value of subscribed Greek government bonds.
This has led to a deterioration of the financial situation of Cypriot banking institutions with the need to strongly recapitalize the entire sector.
This situation prompted Cyprus arask for the intervention of the European Union which in mid-March issued a bailout proposal which, however, was rejected by the Cypriot Parliament following a series of protests from both the Cypriot population and the Russian government (opposed by the deposit tax proposal). After lengthy negotiations, thefinal agreement which provides for a loan from the Troika of 10 billion euros bound to the completion of a series of interventions, some specific for the financial sector and others "classic" of the austerity packages imposed on all countries in difficulty in the area, such as:
- restructuring of the Bank of Cyprus (first bank in the country) and closure of Laiki Bank (second bank);
- adjustment of fiscal imbalances short term;
- structural reforms with long-term effects (social security system, privatization of public enterprises)
Il Cypriot government instead he will have to collect approx 6 billion euros, and the road chosen is that of the tasssment of bank deposits with balances exceeding 100 thousand euros. In addition to these measures, the country has prepared a series of restrictions on foreign financial movements to avoid, at least limit, the risk of capital flight from the country.
The imposition, for the umpteenth time, of austerity measures linked to the disbursement of the loan by the Troika jeopardizes Cyprus' exit from the crisis situation, risking instead of aggravating the effects that the instability of the financial sector is causing to the real economy.
The "rescue" of Cyprus once again raises the problem of the strategies that the EU government wants to apply to resolve this situation: system solution or re-proposition of agreements with a short-term focus?
In the SACE Focus, reference is made to possibility of contagion and it also indicates where the new outbreak could ignite, in Slovenia. The recession (-2,3% in 2012), the imbalances present in the banking system and the difficulties registered in the auctions of Slovenian government bonds show that if a common solution is not found as soon as possible capable of eliminating this instability, the next state in the eye of the storm could well be Slovenia.
The complete Focus On is available at this address.
