SPIEGEL ONLINE INTERNATIONAL: The disastrous financial situation in Cyprus is largely a result of the country's crumbling banks. For years, the island nation profited from its bloated financial sector, but now it will likely have to liquidate its two largest banks. In Nicosia, government leaders fear that could decimate the economy.
If Cyprus doesn't receive billions in foreign aid within a few weeks, the country will default by June at the very latest. But insolvency could come even sooner for the country's two largest banks. The Bank of Cyprus and Laiki Bank are only able to survive at the moment through emergency aid from the European Central Bank, which on Thursday threatened to cut off all liquidity on Monday if terms of a European Union bailout deal aren't finalized with the government in Nicosia.
The banks are actually the very core of Cyprus' problems at the moment. They are bloated, pumped full of Greek sovereign bonds and more or less already bankrupt. Without these banks, Cyprus wouldn't need to seek aid from the permanent euro bailout fund, the European Stability Mechanism (ESM). The banks' difficulties have destroyed Cyprus' reputation on the international financial markets and investors are no longer willing to lend to the country. » | Stefan Kaiser | Thursday, March 21, 2013
