When the history of the euro area sovereign and bank debt crisis is written, the way the troika of Eurogroup finance ministers, the European Central Bank, and the International Monetary Fund managed the rescue of the outsized Cyprus offshore banking center will be useful as a case study to document the extremely fragile state of European Monetary Union at that point in time. The handling of the crisis puts big question marks around the June 2012 EU Summit Council Resolution to transfer banking supervision to the European Central Bank—to a European institution acting as the euro area’s financier of first resort for banks that lack access to market funding. This huge conflict of interest between supervising and funding large and small eurozone zombie banks and pursuing monetary policies oriented toward price stability is ignored by Europe’s democratically elected leaders.
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