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"The German government played hardball, based on the assumption that the consequences of a Cypriot
'no' would be much graver for Cyprus than for the rest of the eurozone," wrote analyst Carsten Brzeski at ING. FISCAL DISUNION: Some analysts say the German refusal to contribute serves as a reminder of how far the eurozone remains from any kind of common responsibility for state finances
-- such as sharing the future costs of winding up bailed-out banks. Leaders from the 27-member European Union agreed last year to establish a joint banking supervision system, which would be followed by an authority with powers to warn or even shut down financial institutions, and a common way to restructure them. It's a key step to overcoming the crisis, aimed at keeping banks from dragging down governments. One idea was to use the European Stability Mechanism bailout fund to give aid directly to ailing banks
-- avoiding adding more debt to the government. However, German resistance to the idea
-- and the structure of Cyprus's rescue, hitting creditors first -- seems to have put that idea on the shelf.
-RETURN OF THE GREEK TRAGEDY: The rescue loan may leave so much added debt, and reduce economic growth so much, that some analysts are already saying another bailout may one day become necessary
-- as it did with Greece. UBS analysts say the deal will mean a "sharp drop" in economic output and a rise in debt from 86.5 to 143 percent of GDP. The official prediction of 100 percent of GDP by 2020 under the deal "must be doubted, in our view." -DECISION-MAKING DELAYS. The deal painfully exposed the cumbersome decision-making among the 17 governments. Cyprus has been in obvious trouble since losing access to bond market borrowing in late 2011. Yet the rescue was only sealed, on the second try, after an all-night scramble hours ahead of the ECB deadline. The last-minute decision making -- especially the misfired proposal of the levy on small depositors
-- led to criticism even from EU officials. "Citizens and markets are puzzled with the degree of improvisation that euro zone leaders have shown," said Sharon Bowles, chairwoman of the economic and monetary affairs committee of the European Parliament. "Shaky agreements that last less than 48 hours are very costly for everybody and lead to an explosive political situation." "No system and no structure can afford to be in a permanent state of emergency."
[Associated
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