A few Cyprus questions

Week-to-week, holiday-adjusted, how much will Cyprus gdp go down?  Is it the case, as it seems so far, that the small (and large) depositors take a whack and the senior credit holders are spared?  Does that set a precedent for future bail-ins?

How much nicer will the other EU countries be to Merkel now?  To her face?  Behind her back?  How many more votes does she win in September?

What counts as “good news” or “bad news” coming out of Cyprus?  Let’s say things go badly.  That could cause market panic and contagion and of course misery among the Cypriots (and Russian oligarchs).  Depositors might pull out of Greek and Spanish banks to a much greater extent.

Alternatively, let’s say the economic transition from the “Cyprus deposit tax” is relatively smooth and orderly.  Will not some other countries start wondering whether their transition out of the euro also would be relatively smooth and orderly?  Keep in mind that, as it stands, Cyprus is suffering deflationary effects, bank closure costs, capital controls, yet without getting the redenomination benefits and independent monetary policy benefits of leaving the euro.  If that appears “OK” (do note however that Cyprus is spared the burden of creating a new currency), won’t the notion that leaving the euro is practical after all start to spread?  Which could cause bigger bank runs than if the Cypriot transition goes badly?

Can good news end up being bad news?  Or vice versa?  What would Jeff Ely say?  What would Garo Yepremian say?

Addendum: There is much more of interest here.  And a good critique from Schumpeter here.


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