Blog Post

No contagion from Cyprus so far

The Cyprus drama has not destabilised the rest of the eruo area so far, despite the talks about a possible ‘Cyprexit’, i.e. an exit of Cyprus form the euro area.

By: and Date: March 21, 2013 Topic: European Macroeconomics & Governance

The Cyprus drama has not destabilised the rest of the euro area so far, despite the talks about a possible ‘Cyprexit’, i.e. an exit of Cyprus form the euro area. While government bond yields have increased significantly in Cyprus, they hardly changed in e.g. Italy and Spain: the slight increase earlier this week was less than after the February Italian elections, and in the past two days yields have even declined. Bank shares in Italy and Spain (and also in Germany) fell and the credit default swap (CDS) spreads of banks have increased somewhat, but nothing extraordinary. See the charts at the end of this post.

Why is the market so calm? There are two possible explanations. First, markets may expect that there will be a deal for Cyprus and therefore the country won’t exit the euro area. Indeed there is a very strong case for Cyprus giving in i.e., the parliament should agree taxing deposits above €100,000, as we argued here. Second, even if Cyprus exits the euro area, it is so small and so special (banking system amounting to more 7-times GDP; about 50% of GDP capital shortfall for banks; suspected money-laundering; tax haven and high bank deposit rates) that it won’t have a systemic effect on the rest of the euro area.

Notes: The following banks were included for calculating average bank data:

CDS

ITALY : Intesa Sanpaolo SpA, Banca Monte dei Paschi di Siena SpA, UniCredit SpA, Unione di Banche Italiane SCPA, Banco Popolare SC.

SPAIN : Banco Santander SA, Banco Bilbao Vizcaya Argentaria SA, Banco Popular Espanol SA, CaixaBank, Caja de Ahorros y Monte de Piedad de Madrid.

GERMANY: Deutsche Bank AG, Commerzbank AG, Bayerische Landesbank, Norddeutsche Landesbank, HypoVereinsbank.

SHARE PRICES:

ITALY : Intesa Sanpaolo SpA, Banca Monte dei Paschi di Siena SpA, UniCredit SpA, Unione di Banche Italiane SCPA, Banco Popolare SC.

SPAIN : Banco Santander SA, Banco Bilbao Vizcaya Argentaria SA, Banco Popular Espanol SA.

GERMANY: Deutsche Bank AG, Commerzbank AG.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint. Anyone is free to republish and/or quote this post without prior consent. Please provide a full reference, clearly stating Bruegel and the relevant author as the source, and include a prominent hyperlink to the original post.

View comments
Read article More on this topic More by this author

Blog Post

Opening speech by Bruno Le Maire

Bruno Le Maire, minister of the economy and finance, delivered the opening speech at Bruegel's event “The Eurozone agreement – a mini revolution?”, 8 July 2019.

By: Bruno Le Maire Topic: European Macroeconomics & Governance Date: July 9, 2019
Read article More on this topic

Blog Post

‘Lo spread’: The collateral damage of Italy’s confrontation with the EU

The authors assess whether the European Commission's actions towards Italy since September 2018 have had a visible impact on the spread between Italian sovereign-bond yields and those of Germany, and particularly whether the Commission’s warnings have acted as a ‘signalling device’ for bond-market participants that it might be difficult for Italy to obtain the support of the ESM or the ECB’s OMT programme if needed.

By: Grégory Claeys and Jan Mazza Topic: European Macroeconomics & Governance Date: July 8, 2019
Read article More by this author

Blog Post

It’s hard to live in the city: Berlin’s rent freeze and the economics of rent control

A proposal in Berlin to ban increases in rent for the next five years sparked intense debate in Germany. Similar policies to the Mietendeckel are currently being discussed in London and NYC. All three proposals reflect and raise similar concerns – the increase in per-capita incomes is not keeping pace with increases in rents, but will a cap do more harm than good? We review recent views on the matter.

By: Inês Goncalves Raposo Topic: European Macroeconomics & Governance Date: July 8, 2019
Read about event More on this topic

Past Event

Past Event

Eurozone agreement: a mini revolution?

What does the new Eurozone budget do, and what does it not do? What are its strengths and weaknesses?

Speakers: Bruno Le Maire and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: July 8, 2019
Read article More on this topic More by this author

Podcast

Podcast

Director's Cut: Priorities for the new ECB president

In this Director's Cut of 'The Sound of Economics', Guntram Wolff talks to two of the authors of Bruegel's memo to the new ECB president, Maria Demertzis and Grégory Claeys, to specify the most important issues at the beginning of this eight-year cycle and to clarify the parameters within which the new incumbent will have to work.

By: The Sound of Economics Topic: European Macroeconomics & Governance Date: July 4, 2019
Read article Download PDF

Policy Brief

The threats to the European Union’s economic sovereignty

Memo to the High Representative of the Union for Foreign Affairs and Security Policy. The authors describe the current context and the increasing interlinkages between economics and power politics and the role to play in reinforcing and defending Europe’s economic sovereignty.

By: Jean Pisani-Ferry and Guntram B. Wolff Topic: European Macroeconomics & Governance, Global Economics & Governance Date: July 4, 2019
Read article Download PDF More on this topic

Policy Brief

Preparing for uncertainty

Memo to the president of the European Central Bank. Grégory Claeys, Maria Demertzis and Francesco Papadia present the challenges that the next ECB president will face during the upcoming mandate, reinventing monetary policy in a system riddled with uncertainties.

By: Grégory Claeys, Maria Demertzis and Francesco Papadia Topic: European Macroeconomics & Governance Date: July 3, 2019
Read about event

Upcoming Event

Sep
4-5
08:30

Bruegel Annual Meetings 2019

Bruegel's 2019 Annual Meetings will be held on 4-5 September and feature the launch of Bruegel's Memos to the New European Commission.

Speakers: Lorenzo Bini Smaghi, Laurence Boone, Claire Bury, Vítor Constâncio, Zsolt Darvas, Maria Demertzis, Ottmar Edenhofer, Baroness Kishwer Falkner of Margravine, Alicia García-Herrero, Danuta Hübner, Mikaela Gavas, José Manuel González-Páramo, Mathew Heim, Yi Huang, Korbinian Ibel, Pascal Lamy, Päivi Leino-Sandberg, Ann Mettler, Ashoka Mody, Mateusz Morawiecki, Mark Leonard, Stefano Manservisi, Erik F. Nielsen, Florence Parly, Jean Pisani-Ferry, Lapo Pistelli, Lucrezia Reichlin, Joakim Reiter, André Sapir, Olaf Scholz, Sena Siaw-Boateng, Philipp Steinberg, Alexander Stubb, Ezequiel Szafir, Laura Tyson, Nicolas Véron, Reinhilde Veugelers, Sabine Weyand, Thomas Wieser, Guntram B. Wolff and Georg Zachmann Topic: Energy & Climate, European Macroeconomics & Governance, Finance & Financial Regulation, Global Economics & Governance, Innovation & Competition Policy Location: Palais des Academies, Rue Ducale 1, 1000 Brussels
Read article More on this topic More by this author

Podcast

Podcast

Director's Cut: ECB monetary policy decisions deconstructed

In this Director’s Cut, Bruegel’s Grégory Claeys and Maria Demertzis take a deeper look at whether the monetary policy decisions made by the ECB over the past three presidential eras arrived by consensus, by unanimity or by majority votes of the governing council.

By: The Sound of Economics Topic: European Macroeconomics & Governance Date: June 27, 2019
Read article More on this topic

Blog Post

The evolution of the ECB governing council's decision-making

Before it is decided who will chair the governing council for the next eight years, the authors look back and examine precisely how decisions have been taken since the ECB was created – by unanimity, by majority, or by consensus.

By: Grégory Claeys and Tanja Linta Topic: European Macroeconomics & Governance Date: June 27, 2019
Read about event

Upcoming Event

Sep
16
08:30

Climate change and the role of central banks

What connections exist between central banks and climate change, and what are the resulting implications?

Speakers: Emanuele Campiglio, Paul Hiebert, Pierre Monnin, Kjell G. Nyborg, Luiz Awazu Pereira da Silva, Mario Quagliariello, Mattia Romani, Paweł Samecki and Dirk Schoenmaker Topic: Energy & Climate, European Macroeconomics & Governance Location: Narodowy Bank Polski, Świętokrzyska 11/21, 00-919 Warsaw
Read article More on this topic More by this author

Blog Post

Where Brexit goes, the law shall follow

How the financial industry and the law firms that support it are preparing for what comes next

By: Rebecca Christie Topic: European Macroeconomics & Governance Date: June 25, 2019
Load more posts