The Yomiuri Shimbun (Mar. 24, 2013)
Prevent disarray in Cyprus from reigniting European crisis
キプロス混迷 欧州危機の再燃回避が急務だ(3月23日付・読売社説)

The financial crisis in Cyprus, a small island nation in the Mediterranean Sea, has begun to rattle the global economy.

The European Union should play a leading role in resolving the disarray and preventing it from affecting the economies of the rest of Europe and Japan.

The Cypriot government decided on a plan to restructure the nation's second-largest bank, which has fallen into financial difficulty. This is apparently a last-ditch measure to prevent the chaotic breakdown of the country's banking sector for the time being and secure financial assistance from the European Union.

The financial crisis in Cyprus, a member of the EU and the eurozone, was triggered by Greece's financial collapse.

Nonperforming loans have damaged the financial condition of Cypriot banks that owned a huge amount of Greek government bonds, but the Cypriot government lacks the fiscal strength to extend public support to them. This has led to stagnation in the Cypriot model of prosperity, in which the banking sector attracted enormous funds from Russia and other investors around the world.


Tax-on-deposits plan rejected

At Cyprus' request, the EU decided with the International Monetary Bank to extend 10 billion euros (1.2 trillion yen) in assistance. As a condition for the bailout, they demanded Nicosia levy a tax on bank deposits, but that led directly to the current disarray.

Outraged with the envisioned taxation Cypriots rushed to banks to withdraw money, further fueling the chaos. A government bill aimed at gaining public support by excluding smaller accounts from the taxation was rejected by parliament, which was thinking of public opinion.

If this situation continues, Cyprus will not be able to meet the conditions demanded by the EU and the bailout will not be implemented. Some observers have expressed concern that Cyprus may default on its debts.

The Cypriot government presented its plan to restructure the second-largest bank because it was forced to present an alternative to the tax on bank deposits. Nicosia must have realized the merits of restructuring the troubled bank, since it would cost less pubic money than keeping the bank open and bailing it out.


German position key

However, it is still too early to tell whether assistance will be extended quickly. One key to determining that lies with Germany, which demands that Cyprus achieve strict fiscal discipline. Nicosia must work out more details of its measures to stabilize its banking sector, in order to convince Germany and other EU members.

The role of Russia, which has close ties with Cyprus, is also important. We hope Moscow will work with the EU.

The biggest fear is that the Cypriot crisis will spill over to other countries such as Spain and Italy, reigniting the European crisis that is currently calming down.

In the foreign exchange market, the euro continues to be weak while the yen tends to be bought. Wild fluctuations in stock prices have also been seen in markets around the world.

There should be careful monitoring of whether the disarray in Cyprus indirectly hinders Abenomics, the economic policy of Prime Minister Shinzo Abe to revitalize Japan's economy.

(From The Yomiuri Shimbun, March 23, 2013)
(2013年3月23日01時45分  読売新聞)