Via Felix Salmon, it appears Cyprus is going to default. However small a country it may be, does anyone at this point want to be on record setting any number of precedents, one way or the other?
So even if Europe has made its first big decision — to force Cyprus to default — it still faces many more. Should it amend the ESM treaty to make any restructuring easier? Should it impose a haircut on Cyprus’s uninsured depositors? And how can it structure the process to minimize the chances of a messy bank run, default, and possibly even exit from the euro? It’s easy to dismiss Cyprus as too small to worry about. But it’s still an important sovereign state. And if the EU missteps on Cyprus, that would bode very ill for any similar problems in bigger eurozone countries in the future.
“Creative ambiguity” is getting harder to manage all the time. What would a depositor haircut here imply for Greek and Spanish banks?