Cyprus is part of the Euro Zone and European Union which has been going through a financial crisis like many of its Southern European neighbors. Cyprus today is on the verge of a banking collapse and Cyprus is looking at a bailout package of 13 Billion Dollars. To understand the Cyprus Financial Crisis one must understand the reasons why the small island country is facing the crisis and how it got to such a dire situation that people are actually queuing up at ATMs all across the country to withdraw as much of their money as they can.
It all started in 2007-2008 with the Global Economic Meltdown. Europe was one of the worst affected regions of the world because of the financial crisis. In 2009 the Cypriot economy went into depression and contracted. This was because its two main industries which are shipping and tourism were badly hit due to the global recession. As a result of this the economy weakened, unemployment grew and it has been facing a recessionary economy. This led to the increase in Debt for the Cypriot Government.
As the neighboring Greece went into a financial crisis that was much bigger than the one Cyprus is facing, Cyprus also faced negative consequences due to it. The Greek Bonds were given a haircut by the European Union. This really hurt the Cypriot banks who were holding the Greek bonds and who were heavily invested in them.
Moreover the economy of Cyprus depends heavily on its financial and banking sector. A possible collapse in the banking sector led to a crisis in the entire economy of Cyprus. Also Cyprus Government got a downgraded by the rating agencies in 2012 and also an emergency loan was given in 2012 by Russia to help refinancing and avoid crisis.
In 2013 the Cyprus economy is again on the verge of a crisis and the banks on a verge of collapse. The initial bailout package by the IMF/EC/ECB required a levy on the bank deposits of the Cypriot people and was not approved by the Cyprus Parliament as there were a lot of public protests against the levy. However Cyprus does need bailing out and hence the parliament has approved the restructuring of the Laiki Bank.
This is the fifth country in Europe that has faced a major financial crisis and has been in need of a bailout. European financial situation is still very vulnerable.