Journal de l'économie mondiale

Saving Cyprus from its “Financial Crisis” in 2013 by the Troika: A Necessary Action Under the Right Terms and Conditions?

Abstract

Frederic Florian Hans-Joachim Fiedler

At June 25th 2012 Cyprus asked the Troika for financial aid after the two biggest banks of the small island state got into distress due to the contagion of the financial crisis from Greece. There were losses piled up of around 4 Bn. Euro. Through interlinkages between the public sector and the banking sector and an ever-intensifying financial crisis in the Eurozone, Cyprus was in jeopardy of losing the capability of repaying its debts. Since then among the EU-members (in politics as well as in society) the question of a bail-out necessity for distressed countries, particularly Greece and Cyprus were discussed. This paper discusses pros and cons of an imminent rescue-package in for Cyprus in terms of necessities as well as specifically a combined bail-out bail-in mechanism. The findings suggest, that both, generally and specifically regarding the Cypriot case, bail-ins have shown to be effective in reducing the financing needs for respective governments and creditors. Nevertheless, such measures do not come without a price. Therefore, political, social and cultural aspects and impacts on the citizens are regarded in this work.