April 22, 2013 / 6:36 PM / in 5 years

UPDATE 1-ECB's Noyer - Cyprus a unique case, not a precedent

NEW YORK, April 22 (Reuters) - Cyprus was a unique case that justified “exceptional treatment”, but its bailout was not a precedent or a template for future crisis management, Bank of France Governor Christian Noyer said on Monday.

Still, the bailout of Cyprus shows the euro area is more robust today than it was a year ago as there were no spill-over effects to other countries, he told an audience at the Paris Europlace New York Financial Forum in New York.

“This is the first time in three years that a major crisis in one euro area country has not affected others,” said Noyer, who is also a member of the European Central Bank Governing Council. “While challenges remain, the actions taken have increased our resilience to internal and external shocks.”

Last month’s 10 billion euro ($13 billion) deal to save Cyprus from bankruptcy imposed major losses on big depositors and raised worries that such a model could be used on other countries that come under pressure.

Cyprus’ huge financial sector, which attracted deposits from rich foreigners, was an extreme situation of moral hazard and such a banking model has no place in the euro area, said Noyer.

Despite the progress the euro zone has made, the stagnation of bank credit is a major concern, particularly as it affects small- to medium-sized firms, he said.

“Overall, the improvement in banks’ funding situation has not led to increased lending to the non-financial private sector, which has declined in recent months.”

Part of this is due to low demand and it may not reflect a weakness specific to the euro area as banks in all advanced economies try to repair their balance sheets after the global financial crisis, said Noyer.

Ultimately, growth in the euro area will depend on the ability to undertake the necessary structural reforms and enhance competitiveness, said Noyer.

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