Bailout of Cyprus Research Paper Example | Topics and Well Written Essays - 500 words

Bailout of Cyprus - Research Paper Example The two banks lost more than 2.3 billion Euros on Greek sovereign bond, which they asked the state to fill in their regulatory capital (Telegraph, 2012). In addition, Cyprus’ economy had been described as a â€Å"Casino economy.† In other words, the country has a banking sector much larger than the country’s gross domestic product. This has been said to be negligence in following the banking rules, making everyone else vulnerable to such economic crisis (Erlanger & Kanter, 2013). Another major problem according to Erlanger & Kanter that led to Cyprus economic crisis is the threat by Euro zone countries to confiscated significant part of the savings of Cypriot banks’ depositors. The result was that large depositors and ordinary savers in such banks were uncertain about their savings. The private sector was therefore more reluctant to steer more funding to financial institutions in trouble as in the case of Cyprus, which increased the need for the country to look for a bailout from the European Central Bank. Cyprus problems also emanated from the country’s wage bill which as analysts explain is the highest in the Eurozone, implying the country similar to Greece has a lavish life where their GDP is much less than their net expenditure. Cyprus bailout has attracted differing views from policy makers and economists. The bailout has been described as a major victory from Eurozone hardliners such as Germany. The hardliners have over the time made it clear that countries only qualify to be rescued in case they acknowledge and do penance of their past mismanagement as would be determined by their rescuers (Erlanger & Kanter, 2013). The argument is that such bailout will have a higher public support for the euro and demand for greater prudence from other countries. However, the critics of the bailout explain the entire arrangements were haphazardly carried out to an extent that it â€Å"underscored the chaotic nature of European decision making more than