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By Peter Leonidou, Head of Sales at Alpari FS
On Monday, June 25, Cyprus became the fifth country to request a euro zone bailout, out of the 17 countries that use the euro currency. With an official bailout request of 1.8 billion euros – 10% of the Cyprus economy – the potential bailout and figure needed has become a highly debated issue, and recent reports stated that the bailout request could reach double figures.
Limassol-based Alpari Financial Services Ltd (Alpari FS), one of the fastest growing providers of online forex trading services, looks at what effect the bailout request has had on the currency market, and discusses the implications and concerns surrounding it.
The total bailout figure being discussed (around 10 billion euros) is a relatively small amount in comparison to bailout requests from other European countries, so at a glance might not appear particularly problematic. This is reflected in the fact that Cyprus’s bailout request has not particularly affected the euro currency rate which remained relatively stable following the announcement, unlike with bailout requests from other euro zone countries.
However a source of uneasiness, and a key topic of discussion, is the fact that 10 billion euros is a large figure as a percentage, relative to the size of the Cyprus economy. Nevertheless Cyprus is a small country, and the smaller the country, the easier it is for the economy to bounce back. In general, Cyprus has a strong economy so the tools are there for a recovery.
The concern in the immediate future however is time. Government funds have been frozen until further notice, until we see exactly what the amount of the bailout is, how it will be distributed, how long it will take, and what austerity measures will be attached.
Banks have also frozen all assets due to a lack of liquidity. This is going to affect businesses in Cyprus. Everything that was lent out or promised by banks to business institutions has been put on hold, so things are stagnant. Everything is on hold, and the longer it takes to reach these decisions, the bigger the effect it will have on businesses in Cyprus. It is this state of limbo that is having the most negative effect on businesses.
Note: This article expresses personal opinions and ideas and should not be taken or misunderstood as investment advice. Alpari Financial Services Ltd is registered as a Cyprus Investment Firm (CIF) and regulated by the Cyprus Securities and Exchange Commission (CySEC), licence number 129/10. www.alparifs.com
