Introduction Cyprus is an island where the Greek Cypriot Republic of Cyprus coexists with the Turkish Republic of Northern

Cyprus; these two republics have been separated by a U.N buffer zone since 1974. The Republic of Cyprus is a member of the European Union since 1st of May 2004 and a member of the Eurozone since 1st of January 2008nand acts as the islands internationally recognized administration. Nevertheless, Greek and Turkish leaders are constantly negotiating through U.N-brokered talks about possible reunification of the two parts. Tourism and financial services drive the Greek Cypriot economy, and restrictions on foreign investment have been lifted. Despite the current situations these two industries are the main sources of revenue for the country. The portion of Cyprus administered by the Republic of Cyprus is a liberalized and open economy with a highly developed legal and trade system. The overall regulatory framework persuades high levels of foreign direct investment and entrepreneurship. Most aspects of the economy are free from state interference, and the judicial system defences the protection of property rights. Nonetheless the current situation the country is going through has changed the overall positioning of the country by worsening its fiscal situation and recording sharp declines in financial freedom. With government spending exceeding 45 percent of GDP, widening fiscal deficits and rising public debt have prompted recent downgrades of Cypruss credit standing and placed the country worryingly close to its Eurozone neighbours in crisis. (Source: Heritage Foundation). In addition the major shock the country went through came from the banking and financial sector. Cypriot banking industry suffered tremendous loses after marking down the value of its holdings of Greek government bonds and loans derived the Greek financial crisis. The combination of the above economic variables brought the country to one of worst crisis it has seen regarding financial freedom, labour freedom, and control of public spending. How it all began The European Union and almost its entire member countries were affected by the United States' financial crisis in 2007-2008. The negative consequences created by the spill-over domino effect influenced the Cypriot economy as well; as a result the country went into a deep recession in 2009, as the economy shrank by 1.7%.(World Bank) One of the first consequences was sharply rising unemployment caused by large decreases in tourism and shipping industry and afterwards in all sectors that used to generate economic revenue. As e results there was weak economic growth until 2012, and the overall economy never managed to reach its pre-2009 growth levels. There were continuous decreases in the value of real estate, property and in addition non-performing loans rose substantially. Cyprus has a small population of 0.8 million and modest economy with nominal GDP of 19.5 billion. On the other hand, the country had a large off-shore banking industry which compared to the GDP the banks had amassed 22 billion of Greek private sector debt with bank deposits $120bn, including $60bn from Russia business corporations.( Wikipedia) With rising

unemployment and associated benefits the size of state debt increased. The banks were then exposed to a haircut of upwards of 50% in 2011 during the Greek government-debt crisis,[17][18] leading to fears of a collapse of the Cypriot banks. The Cypriot state, unable to raise liquidity from the markets to support its financial sector, requested a bailout from the European Union.[9] Progress on fiscal and structural reforms was slow and following a serious explosion at a naval base in July 2011 the major credit rating agencies downgraded the country's rating in September. Yields on its long-term bonds rose above 12% and there was concern that the country would be unable to stabilize its banks.

Shut out of international debt markets, Cyprus needs timely fiscal consolidation and a return to a sustainable level of public spending to restore economic equilibrium and dynamism