The EU/IMF rescue package for Cyprus is complemented by a levy on all deposits in Cypriot banks. This is a new target for private sector involvement. Cyprus is seen as a unique case. So was Greece. The question investors will ask themselves is "who will the EU target next time?"
Should depositors in Cyprus or other peripheral countries feel safe now? They may not. After all, deposit guarantee schemes do not guarantee against a levy. Depositors may also have to factor in that the one-off levy could inspire national governments to do the same thing. So the risk of bank runs has just gone up.
The Cypriot parliament may not accept the deal as it is. A majority in the parliament might be secured by shifting a bigger part of the burden to deposits above EUR100,000. If Cyprus does not accept the deal, there is a real risk that the EU will let the banks collapse and let Cyprus leave the euro.
When markets open this morning, the initial reaction is almost certain to be negative. This could be the beginning of a more substantial sell-off. If investors are capable of holding on to the feeling that the debt crisis is for the most part behind us, markets may calm down after the initial negative reaction.
To Read the Entire Report Please Click on the pdf File Below.
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Flash Comment: Cyprus Deal Is A Dangerous Game
Published 03/18/2013, 09:36 AM
Updated 05/14/2017, 06:45 AM
Flash Comment: Cyprus Deal Is A Dangerous Game
New research from Danske Bank Markets
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