We have stayed silent the past couple of trading sessions as news from Cyprus remained up in the air. However as of this morning a deal is in place to keep Cyprus firmly within the E.U., this upon an agreement last night which will essentially shut down the Cyprus Popular Bank, formerly known as Marfin Laiki Bank. Large depositors carrying 100,000 EUR and over will have up to 40% of their assets seized, while those below will be exempt. Bondholders of the bank will also loss most of their investments.
This averts short-term disaster for Cyprus and keeps the nation within the Single Currency for now. While many details still have to be worked out, the island nation has put itself in line for a 10 billion EUR bailout.
What this deal doesn’t answer are the long-term implications for Europe. Wait, actually it might have an answer and it may not be a positive one. If you are a large depositor and your funds are not insured above 100,000 EUR and you have your money in a weak banking institution on the continent, how comfortable are you feeling this morning? Smiling politicians believe they have saved a nation, but this is only a short-term solution, Cyprus still will face huge hurdles down the road. It also means that companies, including those in finance, will have to significantly ask themselves what their possible risk is if this type of situation were to come about in Spain or Italy. What are the guarantees that this will not happen again?
Digital Markets Advisor’s opinion is that this is a victory for those who believe in seizing ‘easy money’ however, it is a defeat for good government and for individuals and companies that have made money fairly and are now being penalized for the failures of others. For those unfortunate to have large deposits with Cyprus Popular Bank this morning it is not only a defeat but looks also like a robbery.