Cyprus: If it looks too good to be true…

The tiny European country may have avoided bankruptcy, but is staring at a very deep and very long depression.

a woman

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You have to feel for the people of Cyprus. The tiny European country may have avoided bankruptcy, but is staring at a very deep and very long depression.

The details of the country’s ‘rescue’ make grim reading for any saver.

Cyprus’ second biggest bank, Laiki, will be closed. Deposits of less than €100,000 move to the Bank of Cyprus. Those with more would become creditors, facing massive losses as Laiki is dismantled.

For now, the banks remain closed. A run on the banks is not out of the question. What would you do? I’d be queuing up to grab my remaining euros and stick them under the mattress. After all, it’s not as if I’d be earning masses in interest anyway.

World stock markets blinked. Here in Australia, in morning trade, the S&P/ASX 200 fell 34 points to 4956. Losses are spread across the board, of the majors, AMP (ASX: AMP) and Rio Tinto (ASX: RIO) being the hardest hit, both falling a relatively modest 1% or more.

Last year, world markets would have crashed. A recovering US economy, and continued low interest rates across the globe have made investors immune to panic…for now.

According to Fairfax, many of the investors in Cyprus who will suffer most from what is being called the “bail-in” are Russian businessmen, who were exploiting the country’s low business tax rate.

As usual, if it sounds too good to be true, it usually is. Those who play with fire end up getting burnt. Investors in Banksia, Storm Financial, Opes Prime and the like will know the awful feeling.

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Why Cyprus matters for investors

Over-taxed and confused

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