European Central Bank Governing Council member Christian Noyer said the European Union’s flawed Cyprus rescue won’t serve as a model for defusing future crises.
“This was an extreme situation of moral hazard with big depositors looking for abnormal yields in the domestic banking system,” Noyer said today in a speech in New York. “It justified an exceptional treatment. Cyprus is neither a precedent nor a template for future crisis management.”
The Mediterranean island is the fifth euro-zone country to tap international aid in the region’s sovereign debt crisis. The rescue talks in March roiled markets as lawmakers rejected an initial plan that included a tax on insured bank deposits. Under the final accord, Cyprus Popular Bank Pcl (CPB), the country’s second- largest lender, was shut down and losses are to be imposed only on depositors with more than 100,000 euros ($130,470).
The bailout negotiations were “certainly a traumatic episode,” said Noyer, who also heads the French central bank. “Obviously, the decision process was not optimal.”
German Finance Minister Wolfgang Schaeuble said the Cyprus rescue should be used as a template for any further bailouts and that it’s necessary for deposit holders to contribute, business magazine Wirtschaftswoche reported on April 20, citing an interview.
With the Cyprus bailout agreement signed, another “major concern” for the euro area now is “the stagnation of bank credit, which especially affects” small and medium-sized companies, Noyer said today.
“Big corporates can issue at very favorable rates while at the same time, too many SMEs are deprived of necessary financing,” he said. “Part of this weakness is due to low demand factors.”
ECB policy makers are currently looking at options to support an economic recovery later this year. President Mario Draghi has signaled that considerations range from cutting interest rates to introducing a lending program for small and medium-sized companies.
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