Ex-Cyprus Central Bank Official: Greek Elections Don't Solve Crisis

Monday, 18 Jun 2012 11:34 AM

By Michael Kling

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Greek elections don't solve the eurozone's problems, even though the pro-bailout, pro-euro New Democracy party was successful, Athanasios Orphanides, former governor of the Central Bank of Cyprus, told Bloomberg TV.

Orphanides praised the results of Sunday's Greek election, saying they give European leaders more time to solve the crisis and show that Greeks want to keep the euro.

"But really it's not the end of the crisis," he told Bloomberg TV. "In order to have a resolution to the crisis, we actually need a European solution."

Eurozone leaders must pursue greater banking integration, he argued in an interview on Bloomberg radio. To end the crisis, the currency union must integrate financial systems of member states, and form what's being called a banking union.

It needs the safety of European-wide depository insurance, resolution authority, and bank supervision, he said.

Countries are seeing a silent run on banks as depositors gradually withdraw their money from banks. But European-wide depository insurance, he argued, will assure depositors in peripheral countries that it doesn't matter where their bank is headquartered.

"Think about the United States," he said. "Nobody worries if their bank headquarters is in California or Delaware."

Leaders have made some "very unfortunate political decisions in the past," he said, citing the haircut for Greek bond holders. Talk of countries leaving the euro has also aggravated the situation. Euro bonds were rightly rejected because of a lack of safeguards on member spending.

Orphanides said he's optimistic that eurozone leaders will reach political decisions needed to resolve the crisis when they meet at their summit at the end of this month.

However, Europeans are showing little appetite for a banking union, according to The New York Times. In fact, banks and their national regulators are behaving more parochially than ever, refusing to lend to their counterparts across national borders.

Significant changes may take months and may require treaty changes and voter approval, and there is no guarantee of success, the Times notes.

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