Cyprus and the Euro Crisis

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Speaking on NPR’s To the Point, Carnegie’s Uri Dadush discussed the state of the banking crisis engulfing Cyprus and its implications on the euro zone. After Cypriot politicians ruled out an ECB levy on bank deposits, which are seven times larger than Cyprus’ GDP, banks continued closure for yet another week. Dadush asserted that the ECB’s decision to pursue the tax on deposits was “legally dubious, morally unjustified, managerially inept, and economically stupid.” Setting a very dangerous precedent and potentially unleashing a panic and bank run, the pressure on countries in Europe continues to grow. Dadush suggested other channels through which the adequate funding would reach Cyprus, including the restructuring of government debt or perhaps borrowing against the collateral of its expected gas bonanza.