Cyprus on the financial brink

There have been some unprecedented events in Cyprus over the past week, with a financial crisis and Government deadlock over negotiation of terms for an economic bailout from Europe.  Banks have been closed for more than a week, and there is still no clarity as to when they may open again.  The catalyst for this weeks' events was an ultimatum from the European Central Bank regarding terms for a bailout package, which included the imposition of a one-off levy of between 6% to 10% on every bank account in the country. This proposed action provoked outrage and anger across the population, and was ultimately voted down by the Government.  With no bailout package negotiated, two of the largest banks in the country may collapse next week, with a resultant domino effect on other banks and the general economy in Cyprus, bankruptcy and eventual exit from the Eurozone.  There is also a related risk of contagion to other struggling European economies such as Greece, Italy and Spain.     

During the week the Cyprus Government has desperately sought alternative finance solutions to meet the bailout package requirements.  The competing influence and economic interests of both Russia and Europe have been in play, but there is still no deal.   This is a very challenging time for Cypriots, and people have spent the week queuing at cash machines as they try to recover as much money as they can from their accounts.  A full blown run on the banks is a real possibility when the banks eventually reopen.  There is already talk of fuel shortages and a range of other social impacts, and no-one is able to predict what would actually happen should Cyprus fall out of the Euro and revert back to its former currency the Cyprus Pound.  Protests are growing, and some shops have already started to move to only accepting cash.

We are fortunate in that we personally don't keep significant funds in Cyprus.  However a key challenge is to ensure there is sufficient cashflow to pay salaries and maintain operations through this time of uncertainty.

It's uncharted territory for Cyprus and Europe over the coming week.  Unfortunately there is no 'best case' scenario, only bad options for Cyprus, so people are hoping for a 'least worst' scenario to play out.