Cyprus’s Bailout: Three Things to Know

Cyprus has reached a last-minute bailout deal with the so-called troika of the European Union, European Central Bank, and the International Monetary Fund, which will allow it to secure a eurozone bailout and avert the collapse of its banking system. CFR’s co-chairman Robert E. Rubin highlights three takeaways from the Cyprus crisis and its management:

• Banking System Vulnerabilities: Banking systems are often serious points of vulnerability in troubled countries, says Rubin. Cyprus was a very small example, he says, cautioning that "there are other banking systems in much larger countries that are also troubled."
• Eurozone’s Bank Regime Incomplete: "The eurozone has not yet developed an effective mechanism for dealing with banking problems," Rubin says. Such a mechanism was proposed but then "pulled back," he says.
• Eurozone Response Mismanaged: The eurozone response to Cyprus’s crisis was "complicated, convoluted, highly non-optimal in the way that it functioned and in its outcome," Rubin says. In managing such crises, the political implications as well as the potential precedential effects must be considered, he says.