Good Example Of Crisis In Cyprus Case Study

Type of paper: Case Study

Topic: Crisis, Banking, Finance, Taxes, Government, Politics, Economics, Public

Pages: 3

Words: 825

Published: 2020/12/04

a) Identify the Causes of the Crisis Situation in Cyprus
This crisis resulted from a combination of factors which included globalization of finance that encouraged high risk lending and borrowing practices, financial crisis which was international trade imbalances, real estate bubbles and the great recession which is the policy that was related to the government revenues and expenses and approaches that was being used by the states in bailing out banking industries that was causing troubles.
b) Similarities and Differences from Other Crises That Happened Previously in the Euro Zone
Euro crisis was similar to other crises in terms of the initial conditions and origins of the crises. It was difficult to identify any different circumstances because each of these crises was unfolded. The difference was the exchange rate regimes, breadth of crises, persistence of crises role of the private and public sectors and how prepared the country was.

The stakeholders in the Cypriot crisis

The Government of Cyprus is a major stakeholder in the crisis. The government’s perspective is to ensure a working financial regulatory regime across the time. Regulation is carried out through the Bank of Cyprus. The market failures not only show regulatory weakness but also denote the government’s ineffective monetary and fiscal policies. The business community, more so the players in the stock market and banks need a stable and smooth financial environment to enhance efficiency. The investors are wary of the safety of their undertakings, and whether they will get positive returns from the markets. During the crisis, some investors withdrew their resources while some lost heavily. The capital flight is harmful to the economy in general and affects credit rating. The citizens are worried about the stability of the economy. They aspire for an expanding economy that generates jobs and higher quality of life. Many citizens lost jobs in the banking sector. The losses implied that they had no sources of income and felt more frustrated. The crisis proved that job security may not be guaranteed in the country. The international entities and international financial bodies too are stakeholders in the crisis. They include IMF, world Bank, UN and European Union. The bodies seek to promote global development and economic stability.

Options available

One option is to use effective fiscal policies. There is need for more budgetary allocations for fiscal programs, through loans and bonds. This can help seal the budgetary loopholes. The other option is to have increased government revenue through taxation. The property market has been less affected and can help generate some revenue, while the statutory company income taxes can be increased to 12.5%. Austerity measures can be applied to reduce public expenditures, and reduced emoluments. Such options can help the country curb unnecessary wastages and leakages in the public finance.

The policy issues that emerged as a consequence of the crisis

Privatization and debt management: As a result of the crisis, there was privatization of State Corporation to reduce expenditures. The government passed a bill allowing the Bank of Cyprus to absorb selected assets and claims from some banks. The Bank of Cyprus was recapitalized via a debt-to-equity conversion. The banks became more susceptible to impromptu checks to ensure adherence to the regulatory requirements such as liquidity rations and proper record keeping. While the country operates in a free market economy, the decision of the Bank of Cypress to be more vigilant and carry out more surveillance eroded some of the independence the commercial banks had before.
Implications of the fixed exchange rate: This is whereby the currency under the euro and the absence of fast factor mobility within the euro zone and EU are adjusted exchange rates can move to other monetary unions. Capital flows are substantial while equity has not been mobile. the fact that integration is limited to a monetary union meaning that the euro zone faces the rigidities of the fixed exchange rates without benefiting from the advantages of a stronger integration like those of federal countries.
Implications of incomplete integration: this where there is no fiscal union. It implies that national authorities are accountable to citizens only about national aspects and provision of national public goods and not about matters regarding other countries even when they are part of the economic union.
No Common Budgetary Authority or Treasury: this is where public expenditure decisions are normally decided by an interaction between the government and congress or parliament. It’s usually the ministry of finance who designs the budget bill and this is an important power in determining both the composition and the level of public expenditure.

No Lender of Last Resort: federations have their disposal national treasuries and rules for indebtedness and bailout of their sub-national.

Failure of Banking Supervision: because there was financial supervision, the real estate’s bubbles and the growth of banks’ balance sheets were considered. The weakness of banks was not caused by the interruption of money from abroad but it was the bank regulation and the maintenance of financial stability that occurred. The experience of the expansion of banking finance on Europe showed that the right way of supervising and regulating financial border transactions remains a challenge. Extremely rapid expansion of financial institutions balance sheets was overlooked by supervisory authorities.

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WePapers. (2020, December, 04) Good Example Of Crisis In Cyprus Case Study. Retrieved September 28, 2023, from
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"Good Example Of Crisis In Cyprus Case Study." WePapers, Dec 04, 2020. Accessed September 28, 2023.
WePapers. 2020. "Good Example Of Crisis In Cyprus Case Study." Free Essay Examples - Retrieved September 28, 2023. (
"Good Example Of Crisis In Cyprus Case Study," Free Essay Examples -, 04-Dec-2020. [Online]. Available: [Accessed: 28-Sep-2023].
Good Example Of Crisis In Cyprus Case Study. Free Essay Examples - Published Dec 04, 2020. Accessed September 28, 2023.

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