Friday, 22 March 2013

What is Cyprus? and What happening there and Why?

What is Cyprus ?
Cyprus is a country near Greece and Russia. The currency of Cyprus is Euro ,That means it is a Part of the Euro Zone.

What is the problem?Imagine you are told that you need to pay 10% tax on deposits that you have in your savings bank account. The European Central Bank proposed that savings depositors in Cyprus should pay around 10% of the bank balance to bail out the banking sector. This is a sort of a wealth tax imposed on those who have a saving account in the Cyprus bank. Cyprus agreed to over $ 12 bn bail-out to help its troubled banks and to service government debt or pay an interest to lenders. The size of the bailout is half of Cyprus GDP of $ 23.5bn. However, later the Cypriot Parliament rejected such a deal.

The government has proposed the Bank deposit Tax to push the revenues of the Cyprus government  but the bill was rejected by their Parliament members, it is at high fiscal crunch. Cyprus Country has Asked Euro Zone and IMF and World Bank for help but the help provided is not adequate so it has approached Russia (Vladimir Putin) and asked for help. Russians Have invested so much of money in Cyprus Banks. Now everyone knows that Cyprus’ financial system is bad because of which they are withdrawing their money from Cyprus banks which is causing to lose the liquidity of the country and money outflow from the country. So they have shut down all the Banks of the country so that no large amount will be withdrawn from the country. But ATM’s will work normally to help the normal people day to day needs. So, the money of so many people is stuck in Cyprus and everyone is eagerly waiting for the banks to reopen.

Why is Russia so interested to help Cyprus?
Cyprus, being an island, has the capacity to produce natural gas and large amount of Russian money is with the Cyprus Bank. If Russia will give financial help then Cyprus will pledge the natural gas reserves of their country. If not they have to withdraw from Euro and start their own currency

Why has this happened?
As per the data, Cyprus has lent so much money to its neighboring county Greece  which is also using the same currency(Euro) when times were good. But now Greece is not in a stage to return money. and the Tourism is also went down .so they were unable to generate huge Revenues.

Cyprus's borrowing costs have risen steadily because of its exposure to Greek debt. Two of Cyprus's biggest banks are among the largest holders of Greek bonds in Europe and have a substantial presence in Greece through bank branches and subsidiaries. As a result, Cyprus experienced numerous downgrades of its credit rating in 2012 and has been cut off from international money markets. 

What’s the future of Cyprus?
If the banks opened without a financial aid from Russia, IMF, World bank, then people will start withdrawing money from the banks and country will lose its reserves and Banks will be out money. then ECB(European Central bank) has no option other than to Dismiss him from Euro zone(Currency will be changed in the Cyprus).As a tax heaven country.most of the countries will suffer for their collapses

What’s the effect on India?

As it’s tax Heaven Country(Cyprus) we(India) are also playing a Small role in this. We have a great Exposure Towards the Euro zone. India’s equity markets rely heavily on money injected by FII(foreign institutional investors). A weak sentiment in global equity markets directly hurts foreign flows into India. Daily FII flows into Indian equities slowed to around $ 20m to $ 30m over the past three days from well over $ 100m last week, according to the Securities and Exchange Board of India data. If the US dollar strengthens against the euro, it could put a further pressure on the rupee, according to CARE, the rating agency. This could make FIIs wait and watch the situation and slow down foreign flows to India If Cyprus colla[ses then we will be at a great risk.

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