Potential Contagion in Eurozone
Capital flow activity will determine whether the crisis in Cyprus will spill into other peripheral countries. Since Mario Draghi promised to defend the euro in July last year, deposit flows in Greece, Ireland, Portugal, and Spain have stabilized. A failure to reach an agreement on the resolution of the Cyprus crisis by policymakers could trigger a renewed deposit outflow in peripheral nations, which could have severe consequences for the eurozone as a whole. Close monitoring of bank deposit flows in the eurozone, therefore, is warranted in the coming weeks and months.
EUROZONE PERIPHERAL NATIONS’ BANK DEPOSITS*