As Greece’s economy nosedived in 2010, Cyprus’ banking sector began to bleed money tied to Greek investments.

Cyprus bank run

Although Cyprus’ economy was in good health prior to the 2008 crisis, it suffered partly as a result of its proximity to the Greek economy and because of its disproportionately large banking sector that could not be supported by the state when in need..

As Greece’s economy nosedived in 2010, confidence in Cyprus’ economy was severely hit. State finances also took a downturn, unemployment began to rise, while even more the weakness of the banking sector began to unravel. In addition, Cypriot banks suffered a great loss (close to 25 per cent of the country’s GDP) from the haircut imposed on Greek Government Bonds in 2011 that they could not easily handle.

In mid-2012 the government, being cut from international markets (Cypriot Government Bonds were ranked as ‘junk’ since mid 2011), approached the EU for financial assistance. After months of negotiations, in March 2013, the newly elected government agreed to a €10 billion Economic Readjustment Programme from the Eurozone and IMF, which included bank restructuring, tax increases, privatisations, and capital controls. However, the most striking provision was that of a ‘bail-in’, in which bank depositors were required to contribute to the cost of the aid through a bank levy, . Bank of Cyprus depositors were estimated to have lost 47.5% of their savings while for bankrupt Laiki Bank all deposits above 100,000 euros were lost.

Following the Memorandum Agreement with the international lenders, the government pursued a formal investigation into the circumstances of the bailout though the findings of the appointed Committee have had little impact and have been questioned.

Although Cyprus successfully emerged from the programme in March 2016, its economy has yet to recover fully, with unemployment above 12 percent in early 2016, and a high number of damaged and nonperforming loans.

 

Key Facts

Population: 1,189,197 (July 2015 est.)

2005 2009 2015
GDP Republic of Cyprus: $16.81 billion $23.04 billion $28.06 billion
Unemployment Republic of Cyprus: 4% (2005 est) 5.3% 15.5%
Public Debt (% of GDP) Republic of Cyprus: 70.3% 56.2% 108.4%
Key Dates
January 2008 Cyprus adopts Euro
May 2011 Cyprus loses market access
July 2011 Largest power plant explodes, wreaking social and economic havoc