Cyprus' financial struggles can serve a big lesson
In our opinion
International finances have come under scrutiny as of late with the ever-changing situation in Cyprus.
Cyprus is a shipping and energy hub for European countries. Additionally, it has served as a financial powerhouse of sorts for worldwide investments.
At the onset of the crisis, the Cypriot government announced that it would be taxing bank accounts in order to recoup some of the losses. After negotiations, loans and discussion, aided by a plentiful amount of public outrage, the government said it would only place the tax on accounts containing $100,000 or more.
But, Cyprus is just one of the countries currently facing budget strife. Greece had its time in the spotlight not too long ago, and other European Union countries could be facing a similar situation in the near future.
Meanwhile, while quite a few of the countries along the Mediterranean Sea are slowly falling into financial despair, some a bit to the north like Germany and the Scandinavian countries are in better shape.
It raises the question of whether the United States government could take such an action. We don’t think so.
The U.S. has built up a good level of protection for individuals and their bank accounts. If the government wanted to try and raid accounts, it would first have to go through the vast number of banks and also through the courts; and we all know how long things take in the court system. Thankfully, the U.S. doesn’t have a central bank with citizens’ accounts. That said, however, the Federal Reserve can cause difficulties of its own.
Cyprus’ economy is miniscule compared to its surrounding countries, and its population is only slightly bigger than that of Detroit, Mich.
What does all of this mean for us here in the Inland Northwest?
Well, for starters it can serve as a wake-up call to get our fiscal house in order; both at the national level and in our own homes. Cypriots were restricted to withdrawing only $384 per day from their bank accounts. Sure, that would sustain many families for a few days, but in a larger crisis like the one in Cyprus, having a larger emergency fund could prove beneficial.
Anything like the Cyprus situation should be seen as a warning flag, and taken seriously.
The U.S. is facing its own financial troubles, with a growing deficit and debt each year. Spending doesn’t look to legitimately decrease in the near future, and with the fuss made over reducing discretionary spending by $85.4 billion, larger cuts are unlikely to take place.
However, we recognize that it took longer than 10 years for many countries to get to their point of financial instability. With that in mind, it likely won’t be solved in 10 years either. It will take some tax increases and other revenue generators to help fix the situation.
While Cyprus may seem like it’s a world away, we can learn quite a bit from their financial situation. Let’s hope we learn that lesson before it gets too late.