The latest financial crisis to take over the news cycle is a tangled situation in the island nation of Cyprus. Chances are, if you pick up a newspaper or turn on the news over the next couple of days, there’s going to be some talk about the European economy, bank policy, and Cyprus.
In a nutshell, the country, whose banks were closely tied to a lot of Greek debt, are in trouble and need a bailout. There was a proposal on the table until just a few hours ago to raise $13 billion. The Cypriot government had proposed raising $7.5 billion through a one-time tax on all deposits, such that if you have money in the bank, the government will just take a piece of it. People are, of course, protesting this plan.
So the answers to the questions posed in the headlines are, according to New York magazine’s Intelligencer (which offers a cool crib sheet of what all is happening):
It matters because lots of people are scared that the situation in Cyprus will spread — that Cypriots will take their money out of the bank en masse, which will cause people in Italy, Spain, Portugal, and other troubled EU countries to fear for the safety of their deposits as well, and start bank runs in their countries. That could lead to a continentwide financial crisis, and the fallout could hit markets in the U.S.
Dang it Cyprus!
Most people think the international meltdown won’t actually happen. But the government just voted against this plan, so the process of coming up with some sort of solution starts again, according to The New York Times. Cypriot banks as well the European Central Bank and the International Monetary Fund on working on a fix.
Consider yourselves up to date.