Friday, March 29, 2013

Avoiding the Next Cyprus

by Guy Verhofstadt

New York Times

March 28, 2013

Now that the crisis in Cyprus has been temporarily resolved, the unspoken question is: Who’s next?

Perhaps Malta, which has an even bigger banking sector than Cyprus relative to G.D.P., much of it highly reliant on offshore depositors. Or maybe Latvia, fast becoming the destination of choice for Russian funds flowing out of Cyprus and now on course to join the euro zone.

Even Spain or Italy could be vulnerable to a similar bailout, now that the Dutch finance minister, Jeroen Dijsselbloem, who is president of the Euro Group of finance ministers, has hinted that Cyprus could provide a model for the resolution of future banking crises.

And while euro zone leaders eventually backed down from targeting depositors with less than €100,000, a dangerous precedent has been set. The rights spelled out in the European Union’s deposit guarantee laws should never have been put into doubt, and the specter of future runs on banks looms large across the periphery of the euro zone.


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