Wednesday, April 24, 2013
German Parliament Backs Cyprus Bailout
I know there had been a lot of previous talk on Cyprus earlier this semester and It could be becoming monotonous...but there has been substantial process in the bailout plan and euro giant Germany has stepped up to the plate and overwhelmingly voted in favor to supply one third of the bailout for Cyprus. Earlier this week the German Parliament had a vote on a bill which would give 13 billion dollars or 10 billion euros to the future bailout plan for Cyprus. This new and revised bailout plan would require 30 billion euros to bailout Cyprus and return them to some form of economic security and safety. The new rescue plan plans massive reforms on Cyprus's bloated banking sector and over the next two years is expected to drop to 12% or 13%. This new reformed version of the Cyprus bailout plan as well as Germany's example by stepping up and offering one third of the international assistance could be just what Cyprus needs. Maybe after this new bailout if it ends up going through will help Cyprus recover from their turmoil and they might be able follow the model of Ireland and Portugal who have made some great recoveries through hard restructuring.
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I wonder what type of ramifications the Cyprus Bailout debacle has created in the eyes of savers all across Europe? I believe many savers across Europe especially those located in Spain, Portugal, Italy, and Greece are rethinking the locations of their savings. Many individuals in Europe believed the European Central Bank would act in the same fashion as that of the United States and provide emergency loans to the banks when facing a liquidity problem. The Cyprus Bailout arrangement has disproved any notion of a unified financial system which would become the bank of last resort for the European Union. The only reasonable action savers have at this moment is to remove their savings from domestic banks to those of abroad to protect their savings from government hands. This action will only further weaken their domestic banks and hurt the overall domestic economy.
ReplyDeleteThis is a bit worrisome for me because it seems that there is a trend to rely solely on Germany as an arbiter for economic recovery through emergency loans and bailout plans. While I understand the role Germany plays and the Euro, it seems that Germany is carrying the weight of Europe on its shoulders and it will be interesting to see how long this lasts. If Cyprus recovers from this financial mess, the Euro system will need to change in the future where countries like Cyprus, Ireland, Spain, Italy, and Greece are not put into these situations and where Germany is not bearing the cost for their financial failures.
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