In this report, we outline how the eurozone crisis has evolved. We discuss how European Monetary Union (EMU) membership shaped both the economic crisis itself and the crisis response.
The peripheral countries are at very different stages of economic recovery and rebalancing. Growth has returned and private and public balances have improved. Unemployment and public debt levels remain high, whilst part of the rebalancing may just be cyclical.
The severe economic problems Cyprus faced in 2012-2013 were to large extent a private sector debt (banking) problem. A central element of the crisis response in Cyprus was the concept of bail-in.
Cyprus is in the midst of a severe economic depression. With aid from the EU and IMF, the country is slowly picking itself up, but there is a long road ahead. Negotiations on reunification of the island have recommenced and could (in the long term) lead to an improvement in the economic environment.
The Cypriot economy is deteriorating at an alarming speed. As the country's large financial sector is heavily exposed to Greek debt, its banks have been struggling to remain solvent.