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Cyprus bailout puts eurozone at risk

Cyprus bailout puts eurozone at risk

A poll of economists has raised concerns that Spain and Slovenia could follow in the footsteps of panic-stricken Cyprus, which was forced to accept a €10bn bailout in the early hours of Monday morning.

Some 36 out of 48 economists polled by Reuters forecast that Cyprus is unlikely to be the last eurozone country to request an international bailout, with 16 naming Spain and 16 naming Slovenia as the next victim of the monetary issues to plague the member states.

Slovenia’s outsized banking industry has sparked comparisons with Cyprus, with much talk centring on the possibility that the eurozone’s debt crisis could strike the Eastern European country.

However, European Central Bank Governing Council Member Marko Kranjec insisted last week that Slovenia, whose central bank he heads, would not go down the same route as Cyprus.

Likewise, Spain's finance minister Luis de Guindos said in an interview on Sunday he had "absolutely ruled out" asking for international aid to help with its economic problems.

After the head of the Eurogroup of eurozone finance ministers, Jeroen Dijsselbloem, suggested the bailout could serve as a model for tackling future banking crises, policymakers are desperately trying to backtrack, insisting that the latest bailout was specifically tailored to Cyprus.

An agreement was not reached in the survey over whether the most recent bailout would be better or worse for the financial stability of the eurozone.

For Lena Komileva, director of G+ Economics, a research consultancy in London, the outlook is glum.

“The Cyprus deal has brought the European banking crisis to a new level,” she said.

She added that because the withdrawal limits currently in force in Cyprus render a Cypriot euro less liquid than euros where no such restrictions exist, the convertability risk within the eurozone threatened to make an unwelcome return.

“This represents a uniquely bad deal for the euro's future,” she warned.

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