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