Cyprus Being Bailed Out

[DC_FC]

Cant see a section thats more suitable for the question. Basically can anyone tell me why Cypus and Greece are being bailed out with money from the EU ? Is it similar to what happened in th UK a few years ago ?

Thanks for any replies.

[Buenchico]

Many of the problems in the UK came about because banks had loaned money to people who couldn't afford to repay it. (They largely weren't direct loans to customers; they were packages of mortgage debts bought from the USA and elsewhere, where the original lenders had been over-optimistic about the ability of house-owners to repay their mortgages).

If British High Street banks would have been allowed to go bust, there would have been massive economic problems here (with customers losing their savings and thousands of businesses having to close when the banks' receivers demanded immediate repayment of overdrafts). So the Government stepped in to help.

However national governments need to get the money they spend (both on regular spending and upon supporting their banks) from somewhere. That has traditionally been through taxation but, increasingly over the past half century, governments have relied on borrowing money (by selling interest-bearing bonds). That plunges actual countries (rather than just their financial institutions) into debt.

The UK's debt has been rising at a rate which is clearly impossible to sustain in the long term. It continues to rise by £5000 every second[i, which is why all political parties agree that cuts in Government spending are needed. (They only disagree on the speed at which such cuts should be introduced).

Cyprus and Greece both had somewhat similar problems with their banks but their governments were [i]already] far more in debt (relative to what was taken in through taxation) than the UK. They tried to borrow more money to see them through the crisis but (because those countries were seen as risky investments) they had to offer far more interest on the bonds they were selling than countries like the UK and Germany did, which increased the rate at which they were falling into debt.

The position was eventually reached where nearly all of the money taken in taxes was being spent on paying back loans, with no money left to run the country (e.g. by paying public sector workers). The EU agreed to help out but only on condition that those countries immediately started 'to put their houses in order'.

Because the UK isn't in the Eurozone, there will be no bail-outs if a similar situation arises here (which it inevitably will if the Government - of whichever political colour - can't sort out the mess that we're in). If we don't get it right, we're headed for far more problems than any Eurozone country has had to face!

[DC_FC]

Thanks Buenchico, ill give that a read tomorrow.

[Thunderchild]

I lived in italy when the euro was drawn up. Even at 18 and with no economic training i could see a massive mess looming and we were obviously being optimistic.

Put simply, countries governed by their own governments cannot have a unified currency and expect it to work. The countries are all different, socially, economically and politically. Now when i was a lad my grandfather who moved from Britain to italy on retirement (grandmother was italian) would watch italian politics with glee. As soon as the country had a crisis politically the lira would devalue to the pound and he run down the bank rubbing his hands to get his pension out from Britain. the exchange rate varied between L. 2500 to 3200 within months !. Now i have no idea why the stength and "happiness" of a countries government should alter it's monetary worth but apparently it does. So a bunch of countries who economic values changed overnight all decided to bunch together, keep their unstable governments but tie their money together. So from the day they set the value of each native currency to the euro in my opinion things started unravelling as each country was still independantly governed.

In theory a loaf of bread in any EU country was supposed to cost the same. This proven to not be the case very quikly: FAIL and that was months into the euro. 10ish years later - yea right, you expect me to be surprised europe is like a bunch of narrow boats tied loosely together and left in a stormy sea and expected to not be on the ocean floor pretty quicke !

really would the world be better managed by dyslexics and borderline aspergers sufferers ? (me)! probably !