Interview with German Economist Peter Bofinger on Perils of Cyprus Bailout – SPIEGEL ONLINE

Bofinger: Shaking the confidence of depositors across Europe cannot be the solution. Those seeking to save the euro should be contributing true aid during an emergency.

SPIEGEL ONLINE: You mean they should give free money to Cyprus?

Bofinger: At the end of the day, it would be better to take charge and provide a billion euros to rescue the small-scale savers in Cyprus than to risk a collapse of the euro financial system.

SPIEGEL ONLINE: But that would also mean entering into a transfer union and breaking another taboo that is at least as big. Greece, Portugal, Spain and co. would want their money for free in the future, too.

Bofinger: That can be easily avoided. Cyprus is a special case, and it can be communicated as such. No other euro-zone country in Southern Europe has such a bloated financial sector. And there is no other country that could have a comparable domino effect in the euro crisis. Cypriot banks lent some €22 billion to Greek firms and private households, and they have suffered very high losses as a result of the restructuring of Greek bonds.

via Interview with German Economist Peter Bofinger on Perils of Cyprus Bailout – SPIEGEL ONLINE.