Your assignment is to prepare and submit a paper on economic crisis in cyprus. Researchable Context: The study is going to examine how competition and increased public and private debt contributed to the Cypriot financial crisis. It would also examine the rescue model that was used in Cyprus in the economic crisis, bail-in of the Cypriot banks imposed by Euro group, and what it could have been done by the government and banks to avoid this situation. It would also provide recommendations to avert the financial crisis.
The rationale for the study: Over the last decade, the Greek government has borrowed greatly from international markets in order to pay for its trade deficits and budget. Investors became nervous that the public debt was soaring high, which drove up Greece’s borrowing costs. With the banking systems in Cyprus were experiencing intense pressure. they amassed €22 billion of Greek private sector debt. This increase in public and private debt reduced economic growth plunging the country into a crisis (Faustman and Kaymak, 2013). This market concern is what initiated the study to examine how public and private debt contributed to the Cypriot Eurozone crisis.
Although Cyprus had been experiencing rising living standards before the commencement of the economic crisis in 2012, serious problems surfaced in the Cypriot banking sector as early as 2011. Cyprus borrowing costs slowly increased due to its exposure to the Greek debt (Theophanous, 2013). Furthermore, the public debt that was owned by the foreigners increased thus making the economy unsustainable thus creating the crisis. High public debt is very detrimental to economic growth.