Cypriot crisis rocks world economy

The island Cyprus appears several times in Greek mythology. Uranus, god of the heavens, put monster children who were borne by him and Gaia, goddess of the earth, in an underground prison. An angry Gaia let her son Cronos cut off his father’s genitals and threw them into the sea. The sea foamed up and produced the goddess of beauty Aphrodite off Cyprus. The story of Pygmalion was also set in Cyprus.

Cyprus refers to both a country and a tree on the island. Located southeast of Greece in the Mediterranean Sea and right beneath Turkey, the island nation is a tenth of Korea in size. Like Korea, Cyprus is divided into north and south but only Southern Cyprus is recognized by the world. The global economy is being rocked by a country with a population of 1.13 million and a GDP of 23.57 billion U.S. dollars. The biggest shock came last week, when eurozone finance ministers agreed on a financial bailout for the country.

Cyprus, a country closely related to Greece, was near national default due to the troubled Greek economy. The island applied for rescue aid in June last year but the bailout offer by creditors worsened the situation last week. The Cypriot government announced a tax of 6.75 to 9.9 percent on bank deposits between 20,000 and 100,000 euros to repay debts. Customers rushed to banks to withdraw their money before the government took action, but the banks were shut down. Distrust spread like wildfire. Growing fears that financially-strapped governments such as Spain and Portugal might impose taxes on deposits ignited a string of bank runs across the entire continent.

In the end, the Cypriot parliament rejected the bailout offer and thus subdued the crisis. Cyprus will submit a plan to raise the minimum requirement for tax to more than 100,000 euros and issue bonds, but whether this is a solution remains doubtful. The crisis also involves an emotional conflict between Germany and Russia. A significant portion of deposits in Cypriot banks are allegedly from Russia, whose depositors seek low taxes and confidentiality. Germans ask why should they have to pay more to protect Russia’s black money, while Russians say they were screwed over by Germany and other eurozone countries. A small island country on the opposite side of the globe is driving down Korea`s stock prices in Korea. Indeed, what a globalized world.

Editorial Writer Shin Yeon-soo (ysshin@donga.com)