Cyprus Economy Predicted to Shrink 12.5%

Cyprus' economy is now predicted to shrink by 12.5% over the next two years (though even this is probably too optimistic) according to a report by the European Commission that Liz Alderman writes about today in her story, "Future Looks Bleaker Than Anticipated in Cyprus, Its Creditors Claim":

According to a bleak assessment released Thursday by its European partners, Cyprus will fall into a downward spiral for at least the next two years, with the economy contracting up to 12.5 percent during the period as the country reduces a banking sector that had ballooned to more than five times its gross domestic product.

And because the economy will do worse than expected, Cyprus must soon raise 13 billion euros ($17 billion) — nearly twice the amount the government thought it would have to come up with just a month ago — to keep its debt and deficit from spinning out of control and to meet the terms of a 10 billion euro ($13.1 billion) international bailout secured last month by the newly elected president, Nicos Anastasiades.

Cyprus plans on selling 10 tons of gold from its 13-ton reserve. Such a sale, Alderman says, would generate around 400 million euros. Unemployment now at close to 15% will increase. Pressure on Cyprus to develop its substantial offshore natural reserves will lead to conflict with Turkey.