Cyprus: from boom to bail-in

The “greatest” carry trade ever? Understanding eurozone bank risks

Alexander Michaelides

Economic Policy, 2014, vol. 29, issue 80, 639-689

Abstract: SummaryThis is a case study of how a country nearly reached bankruptcy in March 2013, within five years of entering the eurozone. The magnitude of the requested assistance is extremely large relative to GDP (100%) and studying this event provides useful lessons for avoiding such crises in the future. The crisis resulted from a worsening European economic environment (especially in Greece), bad choices with regards to public finances, weak corporate governance within the local banking sector, inadequate and/or difficult regulation of cross-border banking, worsening competitiveness, and bad political decisions at the European and, especially, the local (Cypriot) level. Local politics, reflected in short-term political calculations and/or inadequate understanding of the magnitude of the crisis, delayed corrective action for 18 months until election time, making a bad situation almost impossible to deal with. Overconfidence can be one behavioural explanation for why local politicians ignored the dramatic costs of inaction.— Alexander Michaelides

Date: 2014
References: Add references at CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
http://hdl.handle.net/10.1111/1468-0327.12040 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:ecpoli:v:29:y:2014:i:80:p:639-689.

Access Statistics for this article

Economic Policy is currently edited by Ghazala Azmat, Roberto Galbiati, Isabelle Mejean and Moritz Schularick

More articles in Economic Policy from CEPR, CESifo, Sciences Po Contact information at EDIRC., CES Contact information at EDIRC., MSH Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().