EU: [ECB chief] Mario Draghi confronts Berlin over contagion from Cyprus default

The Telegraph ^ | 1/29/2013 | Ambrose Evans-Pritchard

[bruinbirdman]

Leading European Union officials have warned Germany it would be a grave mistake to let Cyprus default or to impose losses on private creditors, fearing a repeat of errors made when Greece first flew out of control.

Mario Draghi, the European Central Bank’s chief, said a collapse of EU debt talks with Cyprus or a forced restructuring would “undo the positive mood” that has calmed European markets since July.

Mr Draghi told Der Spiegel that Cypriot banks are big enough to pose a systemic risk to the eurozone. They conduct 40pc of their operations in Greece and are a key part of the Greek banking system.

In a jab at German finance minister Wolfgang Schauble – a lawyer – Mr Draghi said banking experts rather than lawyers should make the judgment on contagion risks from Cyprus. His comments came after Mr Schauble suggested that Cyprus is too small to matter.

A chorus of voices in the Bundestag insists on tough terms for the island,

citing a leaked report from Germany’s intelligence services that Nicosia is a money-laundering hub for the Russian mafia. German Social Democrats say they will not back funds for “organised crime”, leaving Chancellor Angela Merkel scrambling for votes to push through a rescue.

Cyprus may need €17bn (£14.6bn) in aid, almost 100pc of GDP. Its banking liabilities are €130bn, or six times the economy, with shades of Iceland five years ago.

No deal is likely until after the elections this month since the EU no longer wants to deal with Communist president Demetris Cristofias,

[pepsionice]

Around four years ago...I did a two-week vacation in Cyprus. First, even at the airport...you’d notice a number of Russian aircraft sitting there. Second, most everywhere you look....there’s construction going on. Money flow into the island is occurring...I have no idea if it’s the Russians or whoever. Third, if you view the business news on a continual basis....Cyprus banks are generally regarded as a joke....like a banking game run by mafia guys.

I don’t see a problem with the Germans asking for a serious amount of reform before acting on the emergency. It’s their money that they are loaning, and they’d like to get it back. Under the current Cyprus finance game...I don’t think they will.

[McGavin999]

It doesn’t matter, it seems the productive are now required to service the needs of unproductive. We have masters now, not leaders and I have a very strong suspicion that most of this is because of criminals in high places.