Archive for the ‘ Cyprus Bailout ’ Category

Political opportunism in Germany deepens the gap in trust and political cultures between northern and southern Europe

Before the Euro crisis it was considered politically incorrect, even xenophobic, to suggest that standards of probity in public life vary widely across Europe. For an institution dedicated to an “ever closer union” this notion is a problem.
The bailout deal for Cyprus (right after balancing the German budget -while its southern neighbors are struggling with austerity measures) demonstrates the dangerous shifting in public perception. The deal is the product of rather short sighted political opportunism in Germany with really bad timing.
Haircuts for Cypriot depositors (wiped out junior bonds added up to only $2,5 bil.) may turn out to be particularly problematic. The Euro crisis may be back with a vengeance if Italian, Irish, Spanish, Greek, and Portuguese depositors withdraw their funds to avoid the risk of unwanted future haircuts. Can German politicians sell future bailouts to the German public? If bond markets react unfavorably, future bailouts could be substantially larger than the $10 bil. bailout for Cyprus.

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