The Cypriot financial crisis Essay Example | Topics and Well Written Essays - 3000 words

The Cypriot financial crisis - Essay Example The paper tells that the European economic crisis is an ongoing economic crisis that has made it hard or impossible for some nations in the euro region to re-finance or repay their government debt devoid of the help from third parties. Clerides and Stephanou noted that Cyprus was considered as a tax haven, thus becoming an epicenter for corruption and money laundering. This made the banking sector to be larger than the nation’s economy. Therefore, when there was an increase in public and private debt, the country went into recession with the economy shrinking by 1.67 % in 2009. This marked the beginning of the Cypriot economic crisis. Over the last decade, the Greek government has borrowed greatly from international markets in order to pay for its trade deficits and budget. Investors became nervous that the public debt was soaring high, which drove up Greece’s borrowing costs. With the banking systems in Cyprus were experiencing intense pressure; they amassed â‚ ¬22 billion of Greek private sector debt. This increase in public and private debt reduced economic growth plunging the country into a crisis. This market concerns is what initiated the study to examine how public and private debt contributed to the Cypriot Euro zone crisis. The Cyprus banking crisis was attributed to Cypriot banks investing heavily in Greek government bonds. The Cyprus banks came under intense financial pressure as the bad ratios escalated. Laiki bank reported that the bank was probably insolvent as early as 2008. This was even before Cyprus plunged into the Eurozone crisis.