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After Cyprus, the EU's Attention Turns to Tiny Luxembourg

Luxembourg City's “Ville Haute”
Luxembourg City's “Ville Haute”Photograph by Michael Marquand

It’s getting hot in Luxembourg, a nation that’s something like Cyprus on steroids. Its population is smaller and its banking sector is bigger. If you thought it was risky for banks in Cyprus to have assets about eight times the national gross domestic product, then what is one to make of Luxembourg, where the multiple is nearly 23?

Worryingly for Luxembourg, there’s a new idea afloat that European Union nations, even small ones, should take responsibility for saving banks operating within their borders, instead of falling back on the EU for help. This week, Dutch finance minister Jeroen Dijsselbloem, who is president of the euro zone group of finance ministers, had tough words for the likes of Luxembourg and Malta in a joint Reuters-Financial Times interview: