The banks in the island nation of Cyprus opened yesterday, a move that created both relief and concern among the citizens of the small Mediterranean island.
The island of Cyprus has had a tumultuous history—having been conquered and ruled over its history by Greece, Egypt, Assyria, Persia, Rome, Byzantium, Venice, the Ottoman Empire, England, and Turkey.
After a Greek-Turkish war in 1974, the island was divided into two parts. The Nation of Cyprus, which occupies the larger south-western portion of the island, is an independent country, while the northeastern portion of the island is a declared nation of “Northern Cyprus,” which is actually under Turkish control.
The current events on the island are focused in the southern Nation of Cyprus. The country had strong financial ties to Greece, which recently experienced an economic collapse due to its struggling private-sector economy and huge public-sector debt. Because of Cyprus’s ties to Greece, and Cypriot banks lost a great deal of Greek money upon the country’s collapse, leading to a banking crisis within the country.
Though Cyprus was bailed out in 2012 by Russia (which also has strong economies to the island), it was not enough, and in recent months it became clear that the country’s banks simply did not have enough money to pay their bills. Cyprus then requested another bailout, this time from the EU. However, the EU required that, in addition to receiving a bailout, the Cypriot government would also need to levy (confiscate) a part of the money that savers had invested in the country’s banks in order to help cover the costs.
While accounts under 100 thousand Euros were ultimately spared from the levy, the government did shut down the banks to prevent a run of people trying to get their money out of the very insecure banks (the US did something similar during the depression). This led to economic problems of their own though. One bank patron, a farmer, noted that his animals are on a “starvation diet,” because he cannot withdraw money from the bank to buy feed for them.
That restriction has been loosened slightly over the past week, but there are still tight limits on how much money a person can withdraw from the bank. That same farmer noted that even though he is now able to withdraw some of his money, the small amount he is allowed to withdraw will likely still not buy enough feed for his animals. These limits on withdrawal amounts, however, are expected to last several months.