ECONOMIC RESEARCH

Cyprus: Just The Facts

March 19, 2013

This note sheds light on the circumstances that have led to the current crisis and the vulnerabilities related to public finances and domestic banks. The large macroeconomic imbalances uncovered by the global financial crisis have yet to unwind, with the economy in deep recession and public debt on an upward trend. The structure of public debt leaves little scope for Greek-style debt restructuring, while the large size of the banking system relative to GDP and its heavy dependence on deposit funding leaves it highly vulnerable to deposit runs.