Die Republik Zypern als Sanierungsfall: Legenden und Fakten zur Finanzkrise
The Republic of Cyprus as a Bankruptcy Case: Legends and Facts Concerning the Financial Crisis

Summary/Abstract: In March 2013 the partners of the Eurozone and the International Monetary Fund agreed to provide a financial aid package of 10 bn. Euro to the Republic of Cyprus. It took more than one year for the partners to agree on the conditions. That Cyprus asked for external assistance has frequently been explained by the Greek haircut in February 2012. But the financial crisis in Cyprus is “homemade” to a greater extent. There are at least eight factors which culminated in the financial crash: Firstly, the financial sector in Cyprus has grown excessively. Secondly, control of the financial industry by the national government and Central Bank proved to be insufficient. Thirdly, the control of the offshore sector has been unsatisfactory as well, as the European Commission noted already when Cyprus entered the European Union in 2004. Fourthly, the Euro partners realized some of the undesirable developments, but reacted too late. Fifthly, the haircut in Greece indeed was not the only reason for the outbreak of the crisis, but it acted clearly as a catalyst. Sixthly, the Republic of Cyprus was characterized as an economic miracle in the past. In the last decade, however, international competiveness declined. Seventhly, Cyprus kept its public debt under control as long as it had to qualify for the entry to the European Monetary Union. After 2008, however, debt increased beyond the permitted maximum. Eighthly, President Christophias shied away from confronting the trade unions in order to carry out structural reforms which were needed urgently. As it is the case in other peripheral countries, too, Cyprus is hit by three parameters: deficit and debt are too high, international competiveness is too low and the state is overstressed when it comes to recapitalizing the banks.

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