The Meaning of Cyprus
The crisis in Cyprus represents an extreme and special case in many respects. But the way that the problem arose, and the solution that was finally adopted, is likely to have very important consequences for the way that Europe addresses its banking problems.
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BRUSSELS – The root of the problem in Cyprus is well known. Its two major banks had attracted huge deposits from abroad, largely from Russia, and presumably mostly from individuals who wished to escape scrutiny at home or elsewhere. The proceeds were then invested in Greek government bonds and loans to Greek companies. When Greece imploded, the investments turned sour, and the Cypriot banks that had engaged in this strategy became insolvent.