Senior economics major

The week of spring break was crazy. While the economy of Panama City Beach was booming, things elsewhere in the world were taking an unexpected turn for the worst — particularly in Europe.

Back in 1999, many European countries pulled together to create their own currency, called the euro. Big, small, advanced and developing countries all got thrown into a United States-like setup of individual states — only these were entire countries, and there was no federal government to clean up messes. Unknown at the time, this was a recipe for disaster, and over the years, the problems with such a system came to light.

The most troubled of all those countries is Greece. The country often known for its provocative stories of gods, war and valor has fallen victim to a dysfunctional government support system that simply cannot afford the promises it has made to its constituents. This situation is proving very difficult to fix, as the solution could involve cutting the programs Greek citizens have grown accustomed to and settled into their lives.

Greece is one of many nations in which persistent worry has become commonplace, as the government has displayed it may not be able to meet its obligations. Greece is joined in the ranks by Portugal and Spain, which face similar cuts. Although those countries are often found headlining European news, the spring break blunder featured a fairly unheard of member of the euro: Cyprus.

Far from mainland Europe, Cyprus is a small island south of Turkey, with a mere 1.1 million citizens. What makes Cyprus so special is that it is to Russia what the Cayman Islands are to the United States: a tax haven. With a GDP of 24.69 billion euros, this small island accumulated an incredible 88 billion euros worth of deposits in its banks.

That statistic alone was enough to raise concerns; the kicker is that the banks were buying government bonds from none other than the Greek government. This risky business proved to be very lucrative, as risky investments tend to yield the most — until October 2011.

At about this time, when it came time for Greece to pay its bills to Cypriot banks, Greece only managed to muster up about 50 percent of the funds and a sincere “oops.” This was devastating to Cyprus’ economy, as it required assistance from the International Monetary Fund and European Central Bank in the form of a bailout. Enter spring break.

The moment of truth was real as ever last week, with Cyprus heading toward total bankruptcy and the need to come up with a plan eminent. Fifteen billion euros was the prescribed remedy to the woes, money the IMF and ECB were not willing to simply fork over.

Instead, the idea was formulated together to simply “tax” up to 60 percent of uninsured deposits worth more than 100,000 euros. Now Cypriots with more than 100,000 euros in their banking system have to pay for the risky loans and poor judgment of bank managers in a hefty way.

This decision was monumental, because banks are institutions based on faith. You have faith that when you deposit your paycheck, something dramatic simply isn’t going to happen. The euro has now set the worst precedent it could have possibly set with regards to its troubled economies. American banks have more than 80 billion U.S. dollars of exposure in European banks and the fear that this could happen in any other euro countries could shake our financial system to its core.

Will Dyess is a junior economics major. He can be reached at dyess00@gmail.com.