Cyprus Crisis Means Bargains for Holidaymakers
The financial crisis in Cyprus was one of the most talked about events in the 2012-2013 calendar, and although the island’s economy is slowly recovering, the effect is still being felt throughout Europe. In short, the Greek debt crisis spread to the Cypriot banks, and exposed the financial and economic failings of the mainland.
This caused Cyprus’ economy to basically be classed as ‘junk’ by rating agencies, and the status meant the island was unable to pay back a variety of debts to the international markets. The government’s reluctance to restructure the debt quick enough was also a major contributing factor.
Back in March, a 10 billion euro bailout package was put together to help save the country’s economy, however in turn the country was forced to close the Cyprus Popular Bank, it’s second largest. Because of this closure, all uninsured deposits were levied.
This also caused around 40 per cent of deposits in the Bank of Cyprus – the nation’s largest commercial bank – to become levied too, with many wealthy customers all over the world losing significant amounts of money. Cyprus is a tax haven for countries like Russia, and thankfully amounts of 100,000 euros or less that were insured were not affected.
Although many of the issues surrounding the bailout are complex, many more can be easily summarised. Firstly, many people believe that the public sector has been abused and swayed to ‘buy’ votes since the 1970s. This also encompasses governmental organisations as well as the banking sector, causing a huge drain on public finances. In order to sustain this drain, politicians relied on public sector employment, however the market was not strong enough to keep the country’s finances in the green.
The government’s inability to act was also another factor which contributed to the bailout package and subsequent closing of the island’s second biggest bank. The shrinking of the economy was severely underestimated by the government, and economists believed that the country’s finances were in good health due to the rich international organisations that held their money in Cyprus banks.
Tax revenues slowed to a snail’s pace when the real estate markets faltered, and this caused a huge hole in the budget. Suddenly, Cyprus was forced to borrow large amounts of money to plug the hole, again with no measures in place to deal with the root of the problem.
Although many industries in Cyprus have been hit hard by the bailout, the tourism industry isn’t one of them. In fact, because businesses want tourism to increase, many hotels and holiday package resorts have slashed their prices to attract holidaymakers. Due to the strength of the pound, the British people will be able to benefit from these holiday bargains significantly, maybe for a few years to come too.
Over the last few weeks, holiday bookings to the island have started to recover, mostly because banks have started to allow withdrawals again. This summer is now expected to be one of the busiest on record, with thousands more holidaymakers flocking to the island, getting much more for their money than in previous years.