Is Cyprus at risk because of the Greek debt Crisis?

2011-08-11T06:32:00.000-07:00

Generally speaking no. The Cyprus economy is independent of Greece, as the figures below illustrate:


Key economic facts - Cyprus - Greece - EU average 2010

		Cyprus	Greece	Slovakia	Germany	UK	Italy	France	EU

	Public Debt as a % of GDP	60%	143%	41.0%	83.2%	80.0%	119.0%	81.7%	80.0%

	Public Deficit as a % of GDP	-4.5%	-10.5%	-7.9%	-3.3%	-10.4%	-4.6%	-7.0%	-6.4%

	Unemployment Rate	7%	15%	14.0%	6.3%	7.7%	8.4%	9.5%	9.5%

	Growth Rate (2010)	1.0%	-4.5%	4.02%	3.50%	1.25%	1.29%	1.48%	1.8%

	GDP in € (2010) per Capita	28,255	28,433	22,128	36,033	34,919	29,392	34,077	30,388

Recent “Stress Test” of Cypriot banks showed after recapitalisation, no Cypriot bank failed the test and even before recapitalisation only one bank Marfin was at any risk due to large holdings of Greek sovereign debt.

Source

1. http://en.wikipedia.org/wiki/Economy_of_the_European_Union

Government Expenditure vs Taxes

2011-03-16T07:18:00.000-07:00

Between 1870 and 2009, some 139 years, Governments have spent an ever-increasing share of GDP * GDP/Gross domestic product = The total market value of all final goods and services produced in a country in a given year.

The underline figures used in the above graph were obtained from The Economist paper Ltd
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- In 1870 the highest and lowest shares of the National Income taken by the state in the example countries was 13.7% (Italy) and 7.3% (USA).

- In 1960, 51 years ago, the figures had increased to 35.7% (Austria) and 27% (USA).

- By 2009 these figures show France was spending 56% whilst the USA was spending 42.2%.

Why does this matter?

… It matters because the financing for government “spending” can come from only four sources.

Taxation

Fees & Charges levied for state provided “services” – effectively taxation by another name.

Borrowing (which ultimately means taxation as borrowings must be repaid … with interest).

Asset sales (by definition a one-off receipt and frequently with negative effects in that continuing subsidies are paid by the state to the now “private” companies – Railways are a good example of this).

Ultimately therefore, Government expenditure directly translates to taxation.

There is no escape from this; other than by Governments deliberately defaulting on loan obligations or being bailed out by others. (Greece, Ireland & Portugal are all in this unhappy situation where sovereign default is becoming increasingly likely – If this were to happen, the debt is simply transferred to the lender and, ultimately to the taxpayers of the lending countries).

Sadly, individual taxpayers can seldom, if ever, influence Government “spending” and so are trapped into a long-term prospect of ever increasing taxation and/or reduced services. They can however take steps to reduce the tax burden on their companies and, with planning, their personal tax burden.

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