Global Insider: Despite Mixed Indicators, Bailout Looms for Cyprus

Global Insider: Despite Mixed Indicators, Bailout Looms for Cyprus

The president of Cyprus and the head of the country’s central bank acknowledged earlier this month that Cyprus may need to seek a bailout from the European Union’s European Stability Fund due to Cypriot banks’ exposure to the Greek crisis. In an email interview, Farid Mirbagheri, a professor of international relations at the University of Nicosia, discussed Cyprus’ position in the European debt crisis.

WPR: What are the scope and causes of Cyprus' current economic difficulties?

Farid Mirbagheri: The main issue has been exposure to the Greek crisis. Cypriot banks hold around €5 billion ($6.2 billion) of Greek sovereign debt and around €20 billion of nonperforming loans in Greece, an amount of exposure that is more than the Cypriot government can afford. In consequence, the economy has shrunk by 1.6 percent in the first quarter of 2012 from the same period a year earlier, with the decline gathering pace. Unemployment stands at a record high of around 10 percent, and government debt has risen from around 60 percent of GDP to almost 80 percent of GDP. (Cyprus’ GDP is around €19 billion, or $24 billion.)

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