Cyprus deal fairer – but costlier too
If we had burned the creditors, the indirect costs to our economy would've been immeasurable, writes Dan O'Brien in Nicosia
What would have happened if, in 2008, the government had allowed Anglo Irish Bank to fail? How would the burning of its big depositors and bondholders have affected the rest of the economy? Would doing so have triggered a run on the other banks and the shutdown of the entire banking system? And, ultimately, would Ireland as whole be better off or worse off today?
There is no better place to consider those questions than in Cyprus. Here, 14 months ago, the Popular Bank of Cyprus – the island's equivalent to Anglo – was shut down overnight. Unguaranteed depositors and bondholders of all kinds were burnt. A run on all the banks then took place. The island's banking system was shuttered for weeks to prevent people withdrawing their money. Depositors and bondholders in more banks were burnt. The initial period of chaos was followed by a deepening of an already severe recession. That recession continues today.
In comparing how the two countries handled their respective crises and the results, let's start with the issue of fairness.