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How to switch off the cypriot financial crisis without weakening durably Europe ?

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Author Info

  • Jean Messiha
  • Bruno-Laurent Moschetto
  • Frederic Teulon

Abstract

The two major banks in Cyprus - Bank of Cyprus and Laiki Popular Bank - have lost more than 4 billion EUR because of their exposure to the Greek bond market. In this paper, we look at how the European Union has responded to banking and financial problems that have affected Cyprus since the end of 2011. Although the financial crisis is minor in absolute terms, it showed that even the failure of a small country can generate systemic risk throughout the euro area. The rescue plan drawn up by the European Commission, the European Central Bank and the IMF (Troika) was adopted later. Taxation of deposits and the establishment of exchange controls is an unprecedented situation that could affect investor confidence in the euro area. Furthermore the tutelage of Cyprus gives authorities very small margins of action and may jeopardize the future of this country.

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Bibliographic Info

Paper provided by Department of Research, Ipag Business School in its series Working Papers with number 2014-169.

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Length: 15 pages
Date of creation: 25 Feb 2014
Date of revision:
Handle: RePEc:ipg:wpaper:2014-169

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Keywords: Crise financière; Chypre; Dette publique; Mécanisme Européen de Solidarité; Zone euro.;

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  1. Alexander Michaelides, 2012. "Banking Crisis in Cyprus and in the Eurozone," Cyprus Economic Policy Review, University of Cyprus, Economics Research Centre, vol. 6(2), pages 41-47, December.
  2. Khaled Guesmi & Zied Ftiti & Ilyes Abid, 2014. "Greece’s Stock Market Integration with Southeast Europe," Working Papers 2014-440, Department of Research, Ipag Business School.
  3. Paul De Grauwe, 2012. "The Governance of a Fragile Eurozone," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 45(3), pages 255-268, 09.
  4. Thomas J. Sargent & Neil Wallace, 1981. "Some unpleasant monetarist arithmetic," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
  5. Philip R. Lane, 2012. "The European Sovereign Debt Crisis," Journal of Economic Perspectives, American Economic Association, vol. 26(3), pages 49-68, Summer.
  6. De Grauwe, Paul, 2012. "The Governance of a Fragile Eurozone," Walter Adolf Jöhr Lecture 2012, University of St. Gallen, School of Economics and Political Science, Institute of Economics (FGN-HSG).
  7. Salvador Barrios & Per Iversen & Magdalena Lewandowska & Ralph Setzer, 2009. "Determinants of intra-euro area government bond spreads during the financial crisis," European Economy - Economic Papers 388, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  8. Carmen M. Reinhart & Kenneth S. Rogoff, 2010. "Growth in a Time of Debt," American Economic Review, American Economic Association, vol. 100(2), pages 573-78, May.
  9. Carmen M. Reinhart & Kenneth S. Rogoff, 2010. "From Financial Crash to Debt Crisis," NBER Working Papers 15795, National Bureau of Economic Research, Inc.
  10. Frederic Teulon, 2014. "EMU: The Sustainability Issue," Working Papers 2014-196, Department of Research, Ipag Business School.
  11. Christopher A. Pissarides, 2008. "The Labour Market and the Euro," Cyprus Economic Policy Review, University of Cyprus, Economics Research Centre, vol. 2(1), pages 3-9, June.
  12. Tobias Adrian & Hyun Song Shin, 2008. "Liquidity and leverage," Staff Reports 328, Federal Reserve Bank of New York.
  13. Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1169-89, November.
  14. Reinhart, Carmen M. & Rogoff, Kenneth S., 2010. "Growth in a Time of Debt," Scholarly Articles 11129154, Harvard University Department of Economics.
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