Why Cyprus Matters

By Robert Kahn – Cyprus measures 0.2 percent of the Eurozone economy. A proposed rescue package is only €17 billion, of which perhaps €9 billion will be used to recapitalize banks weighed down by bad loans and losses on the Greek government debt.

The problem, which we have seen before through the periphery of Europe, is that the proposed package will leave Cyprus with an unsustainable debt level and an economic reform path neither markets nor policymakers believe can be sustained. If the entire package is financed with new lending, Cyprus’ debt rises to from just over 90 percent of GDP today to around 140 percent GDP. Optimists note that Cyprus has large natural gas reserves that will ultimately provide the resources to make good on the debt, but there are significant political and economic hurdles to overcome to make that happen. more> http://tinyurl.com/d9moo74



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