Plan C: Closing Banks Forever

Published by Filipe R. Costa on Thu, 21/03/2013 - 10:23 in

Tags 

banks, Cyprus
Cyprus banks

Daily Market Commentary for March 21: Today is Thursday and banks are still closed in Cyprus. While the Cypriot finance minister is trying to negotiate in Moscow for a plan B, it’s time to think on a plan C, just in case, and that is to consider, closing banks forever in Cyprus.

Even though that may sound as a joke, I’m sure the finance minister would be willing to apply such plan and this way avoid a run on  banks. Unfortunately for him, he will have to look for other alternatives since with banks closed the economy would become chaotic in just a matter of weeks.

Cyprus is in a tough situation with just one way out: to go out of the Eurozone. I’m a true believer of the European project but not in the current terms. Cyprus has been blackmailed by the ECB, IMF, and European Commission. They insisted the country should adopt some desperate measures that just can’t be implemented. With this in mind Cyprus had to ask Russia for help but that will come at a heavy cost. Russia don’t want Cyprus to abandon the Euro as the Cypriot banking system is their entry door to Europe and they’ll probably make a deal in which Cyprus can avoid taxing deposits but Cyprus will have to give a share of its natural gas resources and this way destroy future potential for the next generations.

Leaving the Euro will have some severe consequences. The new (or the old) currency will certainly suffer and inflation may rise, but in one or two years the country will start recovering without losing sovereignty and valuable resources. The only sensible way-out is to leave Euro. That is a direct consequence of European toughness and rudeness.

For now I continue on the defensive side. I don’t expect markets to go much higher until there are some more developments on the Cyprus issue. A long position in gold and a short one in EUR/USD will pay. Oh, almost forgot, the pound is also likely to gain.