CYPRUS has asked its Eurozone partners for a bailout for its troubled banks. It becomes the fifth Eurozone nation to need financial aid from abroad since the Eurozone crisis began three years ago. Greece, Ireland, Portugal and most recently Spain have had to ask the other Eurozone countries for emergency funding to shore up failing banks. Cyprus was widely expected to ask for a bailout in the last few weeks, even as Spain was preparing to request emergency assistance. Cyprus is a small country and a small economy but it is heavily dependent on neighbouring Greece for trade. Cypriot banks are deeply involved in the Greek property market.
Meanwhile, Spain, one of the Eurozone’s largest economies, has seen its cost of borrowing increase today following its decision to seek financial aid. It is estimated that Spain will need €100bn from the Eurozone. One of its biggest banks, Bankia, has already received a bailout from the Spanish government, but this has failed to boost market confidence significantly.
It has been a grim few weeks for Europe. Despite the Irish ‘yes’ vote on the Fiscal Treaty, Italian Prime Minister Mario Monti has issued dire warnings about the future of the single currency. The German Chancellor Angela Merkel continues to refuse to consider mutualisation of Eurozone debt – where the debts of one Euro member would be the debts of all – and instead insists that austerity is the way to growth. Dr Merkel is under increasing pressure domestically as German public sentiment is against spending more German money on what many view as feckless banks and countries. The Fiscal Treaty has yet to be ratified by the German parliament’s upper house, the Bundesrat, as opposition Social Democrats hold out for growth measures.
Such measures are supported by France’s new president, Francois Hollande. Despite initial celebration at the socialist’s election, his so-called ‘growth agenda’ has failed to make a strong impact while British Prime Minister David Cameron has been openly discussing the need for Britain to avoid paying for Eurozone problems and the possibility of a British referendum on the EU. What form such a referendum will take is unclear, it is informing debate in the British media.
There appears to be no end in sight for the Eurozone crisis and no definitive solution to its problems. However, the formation of a new Greek government, which has asked for a longer period to oversee cuts, is seen by many as a step in the right direction. With elections in Germany next year and the US presidential election this November, it is essential for politicians to successfully navigate the crisis. Further problems in the Eurozone would damage leaders in Europe and across the Atlantic.