Angela Merkel’s Cypriot headache

Article Highlights

  • Greece will not have been the last euro member country to require a multiyear bailout program.

    Tweet This

  • German politicians understandably bridle at the prospect that German taxpayer money would be effectively used to bail out Russian oligarch depositors at the Cypriot banks

    Tweet This

  • Merkel will almost certainly want a quick resolution of the Cypriot economic and financial crisis so that bailing out Cyprus does not become a domestic political issue ahead of her reelection bid.

    Tweet This

German Chancellor Merkel will want a quick resolution of the Cypriot economic and financial crisis so that a bailout does not become a domestic political issue ahead of her reelection bid.

One has to pity German Chancellor Angela Merkel. No sooner does she succeed in keeping Greece in the euro, after very protracted negotiations with both the Greeks and the International Monetary Fund (IMF), than another euro member country, Cyprus, rears its ugly head. And it does so with economic and financial problems at least as challenging and as intractable as those in Greece.

Resolution of the Cypriot economic and financial crisis ahead of Germany's September 2013 parliamentary elections will prove to be very difficult for Merkel, since such resolution will almost certainly prove how hollow her assertion has been that official debt reduction in Greece was a special case not to be repeated elsewhere. It will also underline the uncomfortable truth that Greece will not have been the last euro member country to require a multiyear bailout program.

Underlying the present Cypriot economic and financial crisis is a domestic banking sector that was allowed to get totally out of control. Aided by a large inflow of Russian laundered money, the Cypriot banks' balance sheet was allowed to expand to around 8 times the size of the Cypriot economy. To compound matters, a substantial part of the Cypriot banks' balance sheet was loaned either to Greece or to finance a domestic real estate bubble.

The full text of this article is available at The American's website.

 

 

Also Visit
AEIdeas Blog The American Magazine
About the Author

 

Desmond
Lachman

What's new on AEI

Expanding opportunity in America
image Moving beyond fear: Addressing the threat of the Islamic state in Iraq and Syria
image Foreign policy is not a 'CSI' episode
image The Air Force’s vital role
AEI on Facebook
Events Calendar
  • 21
    MON
  • 22
    TUE
  • 23
    WED
  • 24
    THU
  • 25
    FRI
Monday, July 21, 2014 | 9:15 a.m. – 11:30 a.m.
Closing the gaps in health outcomes: Alternative paths forward

Please join us for a broader exploration of targeted interventions that provide real promise for reducing health disparities, limiting or delaying the onset of chronic health conditions, and improving the performance of the US health care system.

Monday, July 21, 2014 | 4:00 p.m. – 5:30 p.m.
Comprehending comprehensive universities

Join us for a panel discussion that seeks to comprehend the comprehensives and to determine the role these schools play in the nation’s college completion agenda.

Tuesday, July 22, 2014 | 8:50 a.m. – 12:00 p.m.
Who governs the Internet? A conversation on securing the multistakeholder process

Please join AEI’s Center for Internet, Communications, and Technology Policy for a conference to address key steps we can take, as members of the global community, to maintain a free Internet.

Thursday, July 24, 2014 | 9:00 a.m. – 10:00 a.m.
Expanding opportunity in America: A conversation with House Budget Committee Chairman Paul Ryan

Please join us as House Budget Committee Chairman Paul Ryan (R-WI) unveils a new set of policy reforms aimed at reducing poverty and increasing upward mobility throughout America.

Event Registration is Closed
Thursday, July 24, 2014 | 6:00 p.m. – 7:15 p.m.
Is it time to end the Export-Import Bank?

We welcome you to join us at AEI as POLITICO’s Ben White moderates a lively debate between Tim Carney, one of the bank’s fiercest critics, and Tony Fratto, one of the agency’s staunchest defenders.

Event Registration is Closed
No events scheduled this day.
No events scheduled this day.
No events scheduled today.
No events scheduled this day.
No events scheduled this day.