Cyprus To Leave Euro?

Published by Filipe R. Costa on Fri, 22/03/2013 - 12:31 in


Cyprus, gold, Euro
cyprus russia

Daily Market Commentary for March 22: What a madness it has been regarding that small warm island? It seems that no one cares about them and the country is in between the EU and Russia, with no one interested with its future.

The ECB is threatening Cyprus, stating it will stop financing to the banking system if no solution is reached until Monday. That’s the same as saying: “if you don’t tax deposits, say goodbye to the Euro”. It’s interesting to see how Draghi may change his tone from a “will do whatever it takes” to save the Euro to something as harsh as to don’t care with one of its members.

My advice to Cyprus is: just leave. If no one cares about you inside the Eurozone, why stay at the heavy costs it will take to impose austerity plans that don’t lead anywhere as the southern economies are a proof? Anyway, imposing a tax on deposits will destroy the financial system in the country, so its better to avoid it now.

Investors have been complacent with the whole situation. Markets continue to rise, not much but at least aren’t in panic and even yields in southern countries are kept more or less unchanged. In my opinion investors are underestimating the trouble that may come from the Cyprus situation. If there are runs on banks in Cyprus that may have consequences in Europe and if Cyprus leaves a precedent is opened. In any case it will weaken the Eurozone and the European project.

For now the Euro is recovering a little from earlier losses, currently trading around 1.2950 against the USD but in my opinion we will continue to see weakness in the pair. Gold has also retreated a little but the same applies to the metal. It seems like everyone prefers to ignore the problems and continue to buy FED-inflated stocks but that won’t last forever because fundamentals don’t allow for it.