Research (Česká spořitelna)
Markets  |  March 19, 2013 11:19:39

Inglorious end of the famous tax haven in Cyprus?

Problems Cyprus to attract attention to himself for some time, in recent days, however, still significantly escalated. Strong consistency of his overgrown with Greek banking sector was the main cause serious problems that necessitated the negotiations for assistance from the EU and International Monetary Fund. The extent of this assistance was estimated at 17.5 billion.However, since this amount gave rise to concerns that it will not be able to repay Cyprus, Cyprus gets only significantly lower amount of EUR 10 billion (roughly estimated amount needed to recapitalize the Cypriot banking sector). In comparison with the previous cases (Greece, Ireland, Portugal), for which financial assistance ranged in the order of 100 billion euros, is of course much lower and therefore the number of EU Member States acceptable amount. Other necessary resources obtained mainly from Cyprus controversial tax bank deposits (5.8 billion), higher taxes on corporate income and privatization. However, the conditions must be approved by the Cypriot Parliament.

Financial assistance was complicated by a long reputation of Cyprus as a tax haven and especially machine laundering. Therefore, the EU finance ministers (under pressure mainly from Germany) providing conditional in its examination of these allegations made by an independent commission. Cyprus long term accused of money laundering and rejects its representatives claim that Cyprus fulfills all the requirements of the European Union to take measures to combat money laundering.

Time to solve the acute problems remains low, according to some statements Cypriot officials cost the state immediately prior to default. This is reflected in the amount of Cypriot rating. The three best-known rating agencies give rating deep in Cyprus"Junk" band with a negative outlook. And such examples of credit rating agency Standard & Poor's has recently warned that its credit rating CCC + M be further reduced this year. Recently elected Cypriot President Anastasiades warned that failure to approve the aid conditions will lead to chaos.

Union unwillingness to be directly involved in solving problems paved the way for Russia, whose banks have with the Cypriot long-term close contact. In the EU, there are concerns that the financial assistance will be de facto Cyprus with Russian oligarchs, who are in Cyprus saved a lot of money. According to various sources should have the Russians in Cyprus between 26-50 billion. Russia Cyprus provided the ref in 2011pomoc of 2.5 billion EUR and Cyprus last year it asked for another 5 billion.

Cyprus problems have similar causes enough problems as Ireland and Iceland (the ratio between the size of the financial sector and GDP in all cases is similar). As well as in Ireland and Iceland, the Cypriot financial sector disproportionately "bloated", so that Cyprus is due to its in terms of taxes and regulation very friendly laws used by many companies as a tax haven.As in the case of Ireland, this system is for the states of the European Union, the Cyprus businesses use as a tax haven, an eyesore. The EU will promote long-term significant change in the structure of the Cypriot economy from excessive share of the financial sector to a more diversified form. This has been recently confirmed as the German finance minister Schäuble that the Cyprus problem can not be resolved without a substantial reduction in the local banking sector.

Cyprus EU wants to help, but at the same time trying to reduce the weight of the financial sector in the economy of Cyprus and especially the reduction of the role of Cyprus as a tax haven and a washing machine laundering.Cyprus while trying to defend it, and you can use the threat of possible further assistance from Russia, but in view of its economic and political weight and acute need for financial assistance can not wait to be in his successful resistance. It is therefore highly likely that the EU will achieve its objectives and Cyprus will gradually pushed to the gradual weight reduction of the financial sector in its economy and the general tightening of regulation, so that gradually lost its attractiveness. This increases the likelihood of a general effort to EU and G20 to limit the role of tax havens. For Cyprus currently has an excellent opportunity now that its strategy effectively enforced. In terms of businesses and investors utilizing Cyprus that can mean substantial changes in the environment in which it operates. This generally goes for them at increased risk and therefore need to consider alternatives.

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