A great deal of ink has been spilled recently about the economic meltdown in Cyprus. The latest domino in the slow collapse of the European monetary union, Cyprus introduced radical solutions to meet the demands of the EU (European Union) and International Monetary Fund (IMF). Now, Cypriot bank depositors have lost chunks of their savings, the Cyprus government has imposed currency controls, and the central bank may be forced to sell the majority of its gold reserves. In some ways, however, the Cypriots are receiving a better deal than citizens of the U.S., U.K., or Canada.
The Cyprus bank crisis is intimately tied to that of Greece. Due to rising unemployment and benefit payments, the volume of state debt – much of which is funded through Greek loans – steeply increased during the recession. In order to fund the loans, Cypriot banks bought Greek bonds. As a result of the Greek bailout settlement, the bonds suffered a 50% haircut, in turn threatening the collapse of the Cypriot banking sector.
