IntroductionThe banking crisis in Cyprus led to economic instability in the country. This prompted the government, the central bank and the European Union in general to take rapid action. Various policies have been implemented to counter the effects of the crisis. The policies adopted aimed to restore financial stability (Weisenthal 2013). Government Policies The Cyprus government quickly introduced policies that would save Cyprus' economic situation and restore investor confidence. This is reflected in the implementation of a number of policies. In 2012, the government of Cyprus introduced strict measures aimed at reducing social spending so as not to worsen the poverty situation in the country. The government has targeted benefits such as scholarships and the universal child allowance (Hobson 2013). Another policy adopted by the government was to increase the value added tax (VAT) rate and excise duties on products such as real estate and oil, which affected everyone. This was a measure intended to help shore up financial deficits. In addition, the government has also introduced changes in social policy. Examples include the abolition of maternal allowances, the reduction of the Easter allowance for retirees, the reduction of subsidies for various schemes (Neuger 2013). The third policy measure adopted by the government is the introduction of an economic adjustment program. The program was designed to address the medium and short term financial challenges facing Cyprus. The program had a number of objectives, including restoring stability to the banking sector through approaches such as downsizing financial institutions and resolving...... middle of paper...... Policies introduced by the government, the Central Bank of Cyprus and the EU in general saved the country from total collapse. These policies had both advantages and disadvantages, but their advantages outweighed the disadvantages, making their introduction interesting. References Alderman, L and Herszenhorn, M 2013, 'In Cyprus, a new plan to end the crisis' , New York Times, Vol. 162. No. 5, pp1-4. Genay, H and Mei, M 2013, “The Cyprus crisis through the lens of banking investors”, Chicago Fed Letter, Vol.1, No.315, pp1-4. Hobson, J 2013, “Sheila Bair: Cyprus filing fee is illegal and destabilizing”, Marketplace Morning Report, 19 March. Neuger, J 2013, “Deauville zombies strike as Cyprus tax ignites crisis”, Bloomberg News, 19 March. Former Cyprus central banker lashes out at EU, says European project is dying,” Business Insider, March 19.