Why Cyprus Is Big Enough To Cause Trouble
January 20, 2013 - 8:27pm
Authored by Martin Lueck of UBS, Cyprus is the euro area’s third-smallest economy in GDP terms (larger only than Malta and Estonia, but likely to be outgrown by the latter this year), accounting for less than 0.2% of the region’s output. Yet, we believe it is big enough to cause trouble. The country urgently needs external funding and applied for an EU/IMF/ECB (in short: troika) programme last summer. In the meantime, the amount in question has risen to EUR17.5bn (c100% of GDP). However, the conditionality that comes with this programme does not go down well with the current Cypriot government, whereas politicians in core eurozone countries have started to point fingers at the small economy’s low-tax, soft banking regulation business model. What emerges is the threat of another deadlock, in which a small country pulls the eurozone’s consistency per se into question, while politi...
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