What Can Investors Learn from the Debt Crisis on Cyprus?

Just as has been seen in a number of other European countries including Greece and Ireland, Cyprus is feeling the effects of the international economic troubles in full force. The debt crisis in Cyprus is causing the government to consider levying 30% of depositors’ bank funds in excess of €100,000. According to Moody’s, Russian deposits account for €31 billion of funds in the Cypriot banks, with individuals and companies from all over Europe, the United States and many other countries around the world having money stored in the nation’s depositories.

Immediate Effects on Cyprus

All across the nation, the consumers and companies alike are in a panic. Many are attempting to withdraw money from the banks due to uncertainty about the immediate future, but this has proven difficult since financial institutions have been closed down awaiting direction from the government. In the near future there is likely to be plenty of dissatisfaction with the island’s government from its residents, while many large companies will move elsewhere to safer tax havens.

The financial situation in the country will be chaotic, and investors who focus on volatility may find a number of different trading opportunities which pose themselves in the near future. Expect a significant fluctuation in government bonds as well as securities in the nation’s banking industry.

What the Crisis Will Mean for the Future

The ramifications of this event will quite possibly be seen in a number of different countries around the world. Not only will the bottom-lines of many multi-national corporations be damaged by this, but consumer faith in a number of nations considered business-friendly countries will likely be lowered with these countries’ economies coming under more intense scrutiny.

Expect many investors burned in Cyprus to remove funds from less financially secure nations in favor of the safety of the world’s financial leaders such as Germany and the United States. It is unlikely that a bailout is going to be enough to turn the island’s economy completely around and there will most probably be further issues with the banking sector over the next year.

What Can Investors Watch Out For?

With the debt crisis looming and continuing to rain on the island of Cyprus, investors can expect a sharp decline in the nation’s economy during the first year and then gradual loses for the following years as companies slowly move their operations elsewhere such as Ireland. Investors will focus more heavily on a nation’s finances before opting to choose it as a business or investment location simply due to its low tax rates.

In the mid-to-long term, after the financial safety of the nations which are banking headquarters are examined, you can expect some changing in the international banking market. Expect there to be some growth in the banking sectors in many other countries also considered safe tax havens such as Switzerland and the Cayman Islands as investors and businesses transfer funds.

No matter what, it is going to take a long time for the dust to settle in Cyprus and for international investors and businesses to begin flocking back to the country. No matter what, even if the country’s officials decide to forgo the seizure of funds, there will be a bitter taste left in the mouths of investors and companies which will have significant negative financial impact on the small island.

Hugh Tyzack started Loansforbad-credit.co.uk in order to help people with bad credit get a loan. You can view his website in order to find out more information. When Hugh is not focusing on finances and updating his blog, he enjoys listening to all types of music and is a skilled piano player. Twitter users can follow Hugh on @badcreditloans8 as well as on Google+.