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Mario Draghi Confronts Berlin Over Contagion From Cyprus Default

Leading European Union officials have warned Germany it would be a grave mistake to let Cyprus default or to impose losses on private creditors, fearing a repeat of errors made when Greece first flew out of control.

by Ambrose Evans-Pritchard

Mario Draghi, the European Central Bank’s chief, said a collapse of EU debt talks with Cyprus or a forced restructuring would “undo the positive mood” that has calmed European markets since July.

Mr Draghi told Der Spiegel that Cypriot banks are big enough to pose a systemic risk to the eurozone. They conduct 40pc of their operations in Greece and are a key part of the Greek banking system.

In a jab at German finance minister Wolfgang Schauble – a lawyer – Mr Draghi said banking experts rather than lawyers should make the judgment on contagion risks from Cyprus. His comments came after Mr Schauble suggested that Cyprus is too small to matter.

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