For all those who thought that getting a bailout was a solution to several European countries, they should ask Greece first and then Cyprus, to realize how futile it is to lend money to a country who has mismanaged resources, and borrowed and invested frivolously without fully disclosing what are the economy's true problems and debt loads.
Not even three months after a substantial bailout was offered to Cyprus, the country is ready for more. The reason, cites that country's President is that the bailout has created a downturn in the economy of Cyprus that has put it again, in need for help.
If this story sounds familiar, let's for a second ricapitulate what has happened so far in Europe. First of all Greece is a clear example of what happens when money is lent to a country that has such deep debt, that all the loan does is stall the inevitable, and puts in place a plan for austerity that robs the middle and lower classes of the money they need to sustain the economy. What is left then, is a country that robs its citizen of their monies through heavy taxation which then goes to barely repay the interest on the bailout loan, while the rest of the infrastructure and the economy come to a virtual standstill. Businesses close and people lose their jobs.
Or let's take Cyprus. After announcing that it was in effect raiding its citizen's bank accounts and put in place several austerity measures to qualify for its bailout loan, their economy has also come to a standstill and the issue of banks defaulting is still very much real, since the bailouts are usually stop gap measures to inject liquidity, but do not resolve the issue of the underlying debt or bank default.
Unemployment in both countries is reaching staggering amounts. In Greece it is fast approaching 50% of the younger population and 43% of the general population. To put things in perspective, the US great depression barely surpassed 30% unemployment during its duration.
The IMF itself, has come out with a sort of self criticism that has stunned Greek citizens. With people starving in the streets and even the most basic services being halted, there is little comfort in hearing that the 110$ billion bailout has been a mistake in management, since the austerity measures it was tethered to were too onerous.
But what is a country like Greece or Cyprus to do? On the one hand, austerity measures in a country that is on the brink do nothing but freeze growth and exacerbate debt, and on the other, there is still a huge debt to be repaid to add to that which existed in the first place, before the bailout loan was even offered.
Cyprus for its part is asking to reverse the banking measures that were taken to secure the bailout. This could be just a way to reopen the spigot of foreign investment, since Cyprus acted as an offshore banking country anyway. But how to solve the problem of banking when the country authorizes the pillage of its own depositors?
If anyone thinks this is an incredible and complex mess, he/she would be right.
Partial source : Spiegel online / 6.19.13
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