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Comment: "All The Conditions For A Total Disaster Are In Place"

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SteveMT's picture

"All The Conditions For A Total Disaster Are In Place"

[Just published that you are welcome to use.]

[What's covered]
Cyprus: The Next Blunder
Not an emergency measure
Eurozone’s help: Suffocating solidarity
The bank deposit ‘confiscation’
The Eurozone’s ‘corralito’
Enter ECB, stage right
All the conditions for a total disaster are in place

The likelihoods of these three scenarios – benign, less benign, and total disaster – are difficult to assess.

What is clear is that the Cyprus bailout has created a new situation, more perilous than ever before.
Once more a deeply dangerous policy action is decided apparently without any awareness of its unintended consequences.

It is also another violation of sound existing arrangements. We have a no-bailout clause in the Maastricht Treaty – a clause that was essential to the Eurozone’s stability. Putting it aside in the case of Greece was the heart of the today’s problem – the reason the crisis spread (Wyplosz 2010). This no-bailout clause has once again been put aside summarily.

We are now witnessing another radical change as a perfectly reasonable deposit guarantee is being undermined. Historians will one day explore the dark political motives behind this move. Meanwhile, we can only hope that the bad equilibrium that has just been created will not be chosen by anguished depositors.