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Another Euro State Goes Belly Up—World Yawns

The Financial Times reports that Cyprus, which has been locked out of world capital markets for almost a year, is preparing to ask the international community for a bailout of its banking sector. Close ties to a collapsing Greece have exacerbated Cyprus’ financial woes, and now it’s looking for help wherever it can get it, negotiating with Russia and Europe to see who can provide the most aid. With more chaos on the way in Greece, time may be running out:

With Cyprus Popular Bank, the country’s second-biggest lender, in need of at least €1.8bn to bolster its tier one capital ratio, a measure of banking strength, many analysts and some officials suggest the island needs to get financing in place before Greek elections this Sunday.

Popular Bank’s financing needs are due to a big writedown in its extensive holding of Greek sovereign debt. But it is also heavily exposed to Greek private sector debt – which outnumbers its stock of Greek deposits by about €3bn-4bn. That means its portfolio could be further at risk in the event of a “Grexit” from the euro or a deterioration in the Greek economy.

Unfortunately, we are now at the point where the impending collapse of yet another European country fails to make the front page, or even arouse significant media interest. In one sense, something like this was inevitable: Cyprus is a very small country whose economy is so deeply entangled with Greece that it is difficult to see how this outcome could have been avoided. This will hardly be noticed amid the general agony of the Eurozone, but that the financial meltdown of an EU member state is no longer news shows just how wide and deep Europe’s problems have become.

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  • Dean Jackson

    It really should receive more attention due to the potential geopolitical implications.

  • Jim.

    So is anyone set to snap up Cyprus at fire sale prices? I’d imagine the main bidding would be between Russia and Turkey, but I honestly have no idea whether either of them are in the market right now.

  • Eurydice

    Maybe it’s not a bad thing to take a break from the hysterics. It’s been like the Eurozone’s been gripped by mass schizophrenia.

  • John

    I must confess I just can’t rouse myself to get to excited about Cyprus.

  • Charles R. Williams

    People are ignoring Cyprus because Cyprus does not matter – except, of course, to the Cypriots and maybe the Greeks, who have a lot more to worry about.

    Greece does not matter either. They have already defaulted on their debts. Some European banks will go insolvent when and if Greece leaves the euro and their respective sovereigns will bail them out. The truth is that these banks are already insolvent. HOW the Greek catastrophe plays out matters to the Greeks, but not as much as finding a way to survive AS the catastrophe plays out.

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