The European Union, the International Monetary Fund, the European Central Bank and the country's leaders are trying to find a deal to secure a 10 billion euro ($13 billion) loan for Cyprus and stave off a failure of its banking system.
The emergency lending program isn't publicly declared, but analysts say the Cypriot central bank has already handed out around 9 billion euros ($11.6 billion).
If the ECB pulls the plug, the Cypriot banks would probably not be able to open their doors, or would very quickly collapse because they wouldn't be able to satisfy the likely rush of customers pulling their money out.
[...] the banking system enters a sort of twilight zone — with the banks closed, there can be no real run on the banks, but salaries won't be paid, mortgage payments won't go through, electricity bills will linger.
After the banks, the next logical step is that the government goes bankrupt, either as it tries to shore up the banking system or because it is on the hook for insuring all deposits under 100,000 euros ($130,000).
The measures it ends up enacting to secure the loan could hurt growth — especially as it may have to raise taxes, doing away with one of the most attractive things for businesses setting up in Cyprus.
Cyprus' economy is a tiny fraction of the eurozone's — just 0.2 percent — but its banking sector is heavily connected to Greece and any collapse could have a disastrous effect on that already stricken nation.
If fears worsened, investors and savers could pull their money out of these countries, threatening their banking sectors.
The mere fact that Cyprus considered confiscating bank deposits below the insured limit of 100,000 euros may have unsettled account holders in other financially troubled eurozone countries.
[...] Russian banks, which have about $40 billion worth of loans to Cyprus-based companies on their books, stand to lose significant amounts if Cyprus' banking system breaks down and money isn't allowed to leave the country.
Or that there's so much cash floating around markets after several rounds of monetary easing by the U.S. Federal Reserve and other central banks that investors are impervious to a potential banking collapse in just one small country.
Since Cyprus has a highly connected, international banking system, if it collapses, companies around the world will suffer.
The emergency lending program isn't publicly declared, but analysts say the Cypriot central bank has already handed out around 9 billion euros ($11.6 billion).
If the ECB pulls the plug, the Cypriot banks would probably not be able to open their doors, or would very quickly collapse because they wouldn't be able to satisfy the likely rush of customers pulling their money out.
[...] the banking system enters a sort of twilight zone — with the banks closed, there can be no real run on the banks, but salaries won't be paid, mortgage payments won't go through, electricity bills will linger.
After the banks, the next logical step is that the government goes bankrupt, either as it tries to shore up the banking system or because it is on the hook for insuring all deposits under 100,000 euros ($130,000).
The measures it ends up enacting to secure the loan could hurt growth — especially as it may have to raise taxes, doing away with one of the most attractive things for businesses setting up in Cyprus.
Cyprus' economy is a tiny fraction of the eurozone's — just 0.2 percent — but its banking sector is heavily connected to Greece and any collapse could have a disastrous effect on that already stricken nation.
If fears worsened, investors and savers could pull their money out of these countries, threatening their banking sectors.
The mere fact that Cyprus considered confiscating bank deposits below the insured limit of 100,000 euros may have unsettled account holders in other financially troubled eurozone countries.
[...] Russian banks, which have about $40 billion worth of loans to Cyprus-based companies on their books, stand to lose significant amounts if Cyprus' banking system breaks down and money isn't allowed to leave the country.
Or that there's so much cash floating around markets after several rounds of monetary easing by the U.S. Federal Reserve and other central banks that investors are impervious to a potential banking collapse in just one small country.
Since Cyprus has a highly connected, international banking system, if it collapses, companies around the world will suffer.
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