While the successful formulation of a new plan to avoid bankruptcy in Cyprus remains in the balance, it looks likely that some form of package will be put together in order to ensure the continued support of the ECB for the country’s banks and hence avoid imminent disaster. However, any deal is unlikely to tackle the country’s economic and fiscal problems, particularly as it is likely to involve the rapid contraction of the financial sector. Meanwhile, the episode looks set to have lasting effects on the rest of the euro-zone.
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