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Posted: 20-Mar-2013
Europe’s islands which come after the peripheral countries in importance seem to act like the tail that is waging the head. Before it was Iceland and now it is Cyprus that is rattling the euro-zone.
Cyprus is seeking $15.8 billion to fund its government and its banks, which both could collapse if they did not get this money. Two of the banks are already insolvent. The parliament rejected a bailout plan from its international lenders that calls for a 10% hair cut in the saving accounts of all banks. The country could then wind up leaving the 17 country euro-zone. The importance of this small island is that if it is forced to leave the euro-zone, it will set a precedence which could turn out to be contagious for the euro.
My feeling is that some people have made this side show a major attraction. The ECB will take care of Cyprus as it did with the PIIGS countries. The ECB has already said that it is committed to providing liquidity within certain limits. It will reach a compromise with the Cypriot parliament. More should be coming and the markets have shown muted reactions.
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