2012–13 Cypriot financial crisis
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The 2012–2013 Cypriot financial crisis is an economic crisis in the Republic of Cyprus that involves the exposure of Cypriot banks to overleveraged local property companies, the Greek government-debt crisis, the downgrading of the Cypriot government's bond credit rating to junk status by international credit rating agencies, the consequential inability to refund its state expenses from the international markets[1][2] and the reluctance of the government to restructure the troubled Cypriot financial sector.[3]
On 25 March 2013, a €10 billion international bailout by the Eurogroup, European Commission (EC), European Central Bank (ECB) and International Monetary Fund (IMF) was announced, in return for Cyprus agreeing to close the country's second-largest bank, the Cyprus Popular Bank (also known as Laiki Bank), imposing a one-time bank deposit levy on all uninsured deposits there, and possibly around 48% of uninsured deposits in the Bank of Cyprus (the island's largest commercial bank), many held by wealthy citizens of other countries (many of them from Russia) who were using Cyprus as a tax haven.[4][5] No insured deposit of €100,000 or less would be affected.[6][7]
Context[edit]
Cypriot debt compared to Eurozone average
Cyprus's debt-to-GDP percentage compared to Eurozone average since 1999
The United States' subprime mortgage crisis in 2007–2008 led to a domino effect of negative consequences in the global economy including the European Union. The Cypriot economy went into recession in 2009, as the economy shrank by 1.67%,[8] with large falls specifically in the tourism and shipping sectors[9] which caused rising unemployment.[10] Economic growth between 2010 and 2012 was weak and failed to reach its pre-2009 levels.[8] Commercial property values declined by approximately 30%.[11] Non-performing loans rose to a reported 6.1% in 2011,[12] increasing pressure on the banking system. With a small population and modest economy, Cyprus had a large offshore banking industry. Compared to a nominal GDP of €19.5bn ($24bn)[13] the banks had amassed €22 billion of Greek private-sector debt with bank deposits $120bn, including $60bn from Russia business corporations.[14] Russian oligarch Dmitry Rybolovlev owned a 10% shareholding of Bank of Cyprus.[14][15][16]
Cyprus banks first came under severe financial pressure as bad debt ratios rose. Former Laiki CEO Efthimios Bouloutas admitted that his bank was probably insolvent as early as 2008, even before Cyprus entered the Eurozone. The banks were then exposed to a haircut of upwards of 50% in 2011[17] during the Greek government-debt crisis,[18][19] leading to fears of a collapse of the Cypriot banks. The Cypriot state, unable to raise liquidity from the markets to support its financial sector, requested a bailout from the European Union.[9]
