EU touchy over Cypriot deposit raid

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EU touchy over Cypriot deposit raid

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In the European capital Brussels there is nervousness over the Cypriot deposit seizure.

Fears of social unrest and a run on the banks focused minds, but no comment was forthcoming:

Simon O’Connor, a spokesperson for the European Commission, said: “It is not for the Commission to comment further at this point of time, except to say that we fully support the efforts of President Anastasiades.”

What Brussels did say was that the planned ‘bail-in’ is a one off as a result of the billions of euros sitting in Cypriot banks.

Zsolt Darvas from the Brueghel Institute think tank in Brussels told us: “There was no real choice. Without bailing in bank depositors, the total rescue would have to amount to 17 billion euro, almost 100 percent of Cyprus’ GDP. And that would have endangered the fiscal sustainability in Cyprus.”

Euronews asked: “If Cyprus rejects the deal, can it stay in eurozone for much longer?”

The reply from Zsolt Darvas: “If Cyprus’ parliament rejects it, then the European partners will not lend any money to Cyprus. This would mean that the major Cypriot banks would collapse. There will be enormous financial chaos in Cyprus. That could lead to accelerated exit from euro area, which would be extremely disastrous for the Cypriot people.”

Cyprus says depositors will be compensated by shares and equity returns, but once again the credibility of the single currency is firmly back under the microscope.