By Donny Kendal
Banks remain closed in the country Cyprus as of Saturday while leaders negotiate bailout terms with the European Union and the International Monetary Fund.
The small island country of Cyprus is the latest European nation to require a bailout of its banking sector. Cyprus, along with dealing with the ongoing recession, has high levels of exposure to Greek debt.
In order to secure a bailout from the EU and the IMF, Cyprus has to find a way to raise money. It is reported in a CNN article that the country must gather $6 billion to be able to get $10 billion from these international organizations.
So far, there is no clear path the country will take to raise the needed funds. According to a New York Times article, a proposal to tax all bank accounts at a rate of 10 percent was voted down by Cypriot lawmakers last week. This proposal caused much outrage in the country.
Cypriot citizens, fearing a loss in their accounts, drained ATMs. The nation’s banks will remain closed until a plan is set. Over the weekend, lawmakers scrambled to vote on other measures that would help the country raise funds and prevent a run on the banks. The New York Times reports lawmakers have passed measures that would limit withdrawals and restrict large movements of money when the banks reopen.
Still to be seen is a way to raise the funds needed to get a bailout. Reuters reports that officials will vote on a plan that would tax accounts over $100,000 at a rate of 20 percent, shifting the burden off smaller savers. In a CBS article, Averof Neophytou, deputy head of the majority party in Cyprus said, “We are voting for the least worst option.”
Details reported in a CNN article show how dire the situation is becoming. If no additional money is added to the banks of Cyprus, all accounts could be at risk. The country could face massive losses in asset value, high inflation and a possible exit from the Eurozone.
This story is ongoing. Cypriot lawmakers are expected to reach a deal to secure a bailout early this week.