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Financial contagion reloaded: the case of Cyprus

  • Oehler-Sincai, Iulia Monica

In the present case study, our main objective is to bring to the forefront the main factors that led to the double-dip recession of the Cypriot economy. We analyze determinants such as “tax haven” status, interlinks with the Greek economy, spillovers originating in the Euro Area as a whole (through the debt crisis) and Greece in particular. In spite of the fiscal reform of 2002 and the new fiscal system in force since the 1st of January 2003, Cyprus continued to be a “tax haven”. Its high investment attractiveness spurred the “Cyp-Rus” relations, boosted an outsized banking sector (representing 800% of Cyprus GDP in 2010-2011) and generated an unsustainable proportion between the real and the “virtual” economy. Besides, the public sector became larger than required by such a small economy, its share in the total yearly value added being close to one quarter. Taking into consideration all these factors, we conclude that the „W”-shaped recession of the Cypriot economy is a sui generis one and the questioning of its “fiscal paradise” status is even more acute than in the case of countries such as Luxembourg or Liechtenstein.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 48214.

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Date of creation: May 2013
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Publication status: Published in Global Economic Observer 1/2013.1(2013): pp. 66-74
Handle: RePEc:pra:mprapa:48214
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  1. Constantinos Stephanou, 2011. "The Banking System in Cyprus:Time to Rethink the Business Model?," Cyprus Economic Policy Review, University of Cyprus, Economics Research Centre, vol. 5(2), pages 123-130, December.
  2. Loredana Maftei, 2013. "An Overview Of The European Tax Havens," CES Working Papers, Centre for European Studies, Alexandru Ioan Cuza University, vol. 5, pages 41-50.
  3. repec:jes:wpaper:y:2013:v:5:p:33-42 is not listed on IDEAS
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