viernes, 22 de marzo de 2013

Will Cyprus start the dominos falling?

Greece didn't drop the Euro but there's a new threat to the common currency -- Cyprus. The country with a tiny economy (one about the size of Scranton, Pennsylvania) may abandon the Euro, thanks to the uproar caused by the "Troika's" (the European Central Bank, the European Union and the IMF) plan to force depositors to fork over a percentage of their fully guaranteed bank deposits to help finance the rescue of the country's banks.

The proposal, which isn't prospering, would have had savers take a haircut to pay bond holders 100 cents on the dollar. If implemented, it would toss aside the hitherto sacrosanct principle that a government guarantee of bank deposits is a hell or high water guarantee.

If ever there was an incentive to move money out of the banks of weaker countries (like Cyprus, Greece, Spain, Italy, etc.) into the banks of strong ones (like Germany), this is it. What a recipe for capital flight and for a death spiral for weak banks!

The problem is that there's still no other solution and Cyprus faces a March 25 deadline. Stay tuned for the result of the frantic negotiations that will undoubtedly be occurring over the weekend.

No hay comentarios:

Publicar un comentario