Central Bank of Cyprus

Ralph Atkins

European Central Bank communication was not at its most brilliant ahead of this week’s deal on a second bail-out for Greece. Nothing has been said formally about the bond swaps, which will circumvent forced losses on Greek government bonds acquired as part of its eurozone crisis-fighting measures or by individual eurozone central banks for their investment portfolios. We still do not know, officially, the size of those holdings.

The result has been a lot of misinformation. One commonly held assumption is that some of the eurozone’s monetary institutions had worrying levels of exposure – for instance Cyprus’s central bank. In fact, the amount of Greek bonds it holds are much lower, I have been told by someone who has seen its figures. Read more

Government debt markets are about trust. Before the crisis, all eurozone governments enjoyed the benefit of their collective trustworthiness, co-operation and solidarity in the form of favourable financing conditions that contributed to the wellbeing of Europe.

Investor trust in the eurozone has been badly shaken in the past two years. The image of co-operation and solidarity has been shattered. As 2011 came to a close, questions about the survival of the euro that would have been considered taboo earlier began to surface. Following Greece, a number of member states faced difficulties refinancing their debts or lost access to markets altogether, despite the implementation of unprecedented fiscal programmes.

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