Cyprus Bailout | South’s Banks Stay Shut After Markets Spooked
Originally, the south’s banks were supposed to open today but their Central Bank decided to keep them shut after the head of the Eurogroup, Dutch Finance Minister Jeroen Dijsselbloem, suggested that the deal could form the basis for future bailouts in the Eurozone. This panicked the financial sector which now believes that banks with Laiki Bank-type unbalance balance sheets MIGHT no longer get an old-style ‘get out of jail free’ bailout. The south’s Central Bank decided that this statement might cause a bigger run on banks than would have been otherwise. However, that belief could be extended indefinitely and along with it so could the decision to open the south’s banks.
Many economists argue that the European Central Bank’s previous policy has contributed to the boom-bust in the Eurozone and that a little bit of uncertainty about potential bailouts might make people think twice before investing large uninsured sums in banks offering irresponsibly higher interest rates.
“If we want to have a healthy, sound financial sector, the only way is to say: ‘Look, there where you take the risks, you must deal with them, and if you can’t deal with them you shouldn’t have taken them on and the consequence might be that it is end of story’.”
Well, you’ve been told?
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