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There will be another last-minute resolution for the banking crisis in Cyprus [ClearOnMoney]
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There will be another last-minute resolution for the banking crisis in Cyprus

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Commentary

There will be another last-minute resolution for the banking crisis in Cyprus

21 Mar 2013 by Jim Fickett.

The euro zone has delivered a long series of crises, with each one resolved at the last possible moment. Very likely the banking crisis in Cyprus will follow the pattern.

The case of Cyprus is similar to that of Iceland – a large part of economy has been in banking, and the banks are insolvent but too big to be rescued by the government without outside help. The fundamental political difficulty is that the government, in order to keep this part of the economy viable, wants to favor large foreign (mainly Russian) depositors in any resolution, while the EU want no part of supporting what it thinks may be a major money-laundering operation.

The current game of chicken is that Cyprus risks a failure of its banks if the European Central Bank withdraws support, while the EU risks bank runs in, say, Spain, if the situation in Cyprus gets out of control. For the next few days the banks are closed, and there are long lines at the ATMs.

The best summary of the situation I've seen is an article in the Financial Times entitled Cyprus crisis: The four scenarios, in which possible resolutions of the situation are explored, and the main political difficulties for each are explained.