This EU/IMF deal differs from other euro zone bailouts because, instead of taxpayers footing the bill, depositors with large balances are bearing the costs. Cyprus academic Vassilis Monastiriotis said it is a major shift in euro zone policy.
"We had the most similar case of Ireland. We had the decision to push the bill to the taxpayer so the government, the Irish government took the responsibility of recapitalizing the banks, the deposits were guaranteed, and then this spilled over to the real economy," said Monastiriotis. "The case of Cyprus is exactly the opposite. It is the bond holders, the shareholders, and the depositors that take up the bill, and then we try to minimize the implications to the government.
On Monday the head of the Eurogroup, Jeroen Dijsselbloem, suggested the rescue program for Cyprus could be a new template for resolving the banking crisis in Europe. He said, "If the bank can't do it, then we'll talk to the shareholders and the bondholders, we'll ask them to contribute to recapitalizing the bank, and if necessary, the uninsured deposit holders.
Following his comments, financial markets dropped. Monastiriosis said it would be a dangerous precedent to set.
"There is a big risk of destabilizing the banking system of the euro zone with this kind of solution because the savings above 100,000 euros are not guaranteed anywhere in the euro zone. This may lead to very significant outflows of capital from the euro zone - definitely from the south of the euro zone to the north. But also potentially outside of the euro zone, and this will create more problems then it solves," said Monastiriosis.
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2013-11-25
2013-11-25
2013-11-25
2013-11-25
2013-11-25
2013-11-25