When you think European financial crisis, you think Greece, or Spain, or Italy. But economic trouble in the small island nation of Cyprus is causing a serious panic throughout Europe. Because of Cyprus banks' exposure to the financial troubles in neighboring Greece, the island nation's banks need a bailout.
In exchange for the $13 billion dollar bailout, representatives from the European Central Bank and IMF, along with finance ministers from European countries, have proposed a radical plan to impose a one-time tax on bank depositors. The plan calls for a 6.75% tax on all bank deposits up to 100,000 euros, and a 9.9% tax on deposits over that amount.
As residents learned of the proposal, people rushed to banks and ATMs to withdraw their savings to avoid the tax. The policy is causing panic in Cyprus, and that government has halted electronic bank transfers through Tuesday, in an effort to prevent a run on banks throughout that nation.
Residents in other European nations are watching closely to see if similar plans are proposed for their countries. If leaders are not careful, this policy could bring down the banking system in Cyprus, and possibly throughout all of Europe. Let's hope they make the right decisions, and stop this financial disaster before it's too late. Stay tuned.
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