The Cypriot crisis has enthroned Germany has the leading European country. European economics are likely to be German driven from now on. Thus, fiscal profligacy or faulty business models are considered to have caused the recent crisis and the German cure to this is clear: austerity and structural reforms must be enforced. Cyprus was first on the list.
If an agreement could not be found with the previous Cyprus communist-led government, negotiations resumed intensively between the Troika of European Union, International Monetary Fund and the European Central Bank and the newly elected President Nicos Anastasiades. The Euro zone is again at stake: Cyprus’ bailout would amount to 17 billion euros, equal to Cyprus’ annual economic output. But would it be able to repay?
The European Union is about to bail out Cyprus but no details on how it could be done are released yet. Joerg Asmussen, ECB board member, announced that “the troika of European Union, International Monetary Fund and the European Central Bank would send a mission of experts to Cyprus on Tuesday for a technical analysis of the country’s financing needs and to get a better understanding of the new Cypriot government.” Owing to the importance of the event for the Euro zone, it is worth reminding what Enrico Colombatto, IREF scientific director, wrote on Cyprus’ bailout.
Prof. Enrico Colombatto (Turin), IREF scientific director, has provided his update on EU policies. This month, he describes sovereign bailouts, the probable change of monetary policies, and the repayment of ECB loans.
Domestic. How are the high profile struggling countries faring – Greece, Cyprus, Portugal, Ireland?
Despite the January media narrative that the worst of the crisis is over and the bailouts are working, the specific positions of the four countries challenge this position.
The Obama administration has just proposed a new fee — otherwise known as a tax — on the country’s largest financial institutions. The tax aims to recover the difference between the bailout funds provided to these institutions a year and a half ago and the amounts ultimately returned to the Treasury. In so doing, the tax will allegedly reduce the federal deficit by some $90 billion.