Cyprus is on the verge of financial meltdown. It may take Europe and Russia with it.
It’s time to stop looking at the Dow Jones Industrial Average’s stellar comeback and start looking at what’s happening in Europe: there’s a crisis happening in Cyprus that could have global repercussions. The tiny island-nation (with a population of just over 1 million people) is a full-fledged member of the European Union and the Eurozone, so its currency is the Euro. Like Greece, Portugal and Spain, it is one of the financially and economically weaker members. And exactly like Greece, the country is bankrupt. But as a member of the EU, it has sought help from member countries to avoid a spiral into insolvency. This is when things got messy.
Last week the government of Cyprus, in conjunction with European finance ministers, indicated that they found a solution to avoid bankruptcy; wealthier member countries would put up some money but Cyprus in exchange for this aid would have to tax all savings in bank accounts with a one-time tax of 10 percent. This in and of itself is absolutely shocking; it amounts to the government confiscating 10 percent of everyone’s savings to pay its own debts. This announcement lead to protests: bank “holidays” to prevent depositors from withdrawing all of their money. The Cypriot parliament has yet to vote on approval of the tax given the pressure to approve from Europe and the pressure to not approve from Cypriots. But it gets much worse.
