Today, the German lower house of parliament passed a €10 billion rescue deal for Cyprus, ushering in a possible resolution to this spring’s financial crisis. However, the Troika’s (EU Commission, IMF, and ECB) negotiation tactics have perhaps irrevocably damaged trust relations between the tripartite committee and depositors in Eurozone nations.
In an effort to maintain European solidarity, the Troika first proposed going back on the EU’s 2009 directive to provide a government insurance guarantee on all deposits below €100,000. While this “bail-in” proposal was defeated by the Cypriot parliament, the political ramifications stemming from the EU leaders’ initial proposal to tax both insured and uninsured Cypriot depositors has bred both anger and fear.
While the final deposit haircut on large deposits was perceived as a way to impose losses on large Russian depositors, the initial proposal by the European finance ministers calls into question the stability of deposit guarantees in general. What will the effects be if other small Eurozone nations, such as Slovenia, face an impending banking/sovereign debt crisis?
With the Cypriot parliament expected to vote on the future bailout package proposal on April 26, experts will continue to assess the lessons learned in Cyprus.
Please join us on April 23rd at AEI for an in-depth analysis of the international repercussions and alternative solutions to this banking fiasco. RSVP here.