EU commissioner Olli Rehn says Cyprus has to severely reduce government and bank debt before any rescue program, which is likely to see mergers or closures of the countries banks.
Whilst the country only accounts for 0.2% of the EU economy, there are divisions amongst potential contributors to the rescue.
IIF Dallara speaking from Davos said Cyprus had the potential to spark another phase of the euro-zone crisis. The “bailing in” of uninsured depositors would set a precedent that would have an effect elsewhere, for example in Spain.
He added “I don’t see the key players coming together to find solutions here. It may be [small], but it is a euro-zone member and it has the potential to generate stress and contagion throughout the euro zone,”
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