Currencies  |  March 26, 2013 13:29:29

Cyprus is awaiting the lost decade

SP500 had again to reach the stars

The SP500 stock index yesterday traded only on the distance of one point from their a record closing highs of October 2007, but ultimately has concluded in strategy. The reason is uncertainty about what was, what consequences can have cyperská restructure. Yester cocktail stock: Dow Jones -0.44% SP500 -0.33%, Nasdaq Composite -0.30%.

Cyperské addressing the foundation for the future

The sharp decline in the single currency yesterday and after the words Dutch finance minister and the head of the Eurogroup Dijsselbloema Jeroen, who in an interview with Reuters, he said that the process of saving the financial sector could be used as a template for further rescue operations in the euro zone. Specifically, in an interview said: What we did last night, we call the reduction of risks ...If your bank risk in Safari, our first question should be good, and what the team wants to make the bank itself? What the bank can take in order to recapitalize itself? If the bank itself fails, so will will speak with shareholders and bond holders. We will ask them to participate in the recapitalization of banks and, if necessary, opýtame This will also be the holders nepoistených deposits. When asked what this means for other countries with large financial sectors, these countries just referred Riesa problem (banks) before they are run into issues. Yea banks, fix their balance and please note that if the bank gets into difficulties, the answer does not have to be automatically that we come and he shall take to themselves the problem. We'll return it to you. This will be our first step. Revert your risks. You read them Ries.This means that the entire plan of recapitalization of banks through ESM basically threw in the trash: We should strive to achieve a situation in which we will never have to be considered recapitalization ... If we have a number of tools by which can execute bail-in (salvation from their own ranks), the need for direct recapitalization will fall ... I think that the approach must be such that the first bank problems must be addressed before the bank itself, before we look after, or other public sources inštrumentoch arriving from verených money. Banks should be able to deliver the same, or are at least to some extent recapitalize or restructure. The fact that it is not a one time event, but the start of a new era, said the following words through, Now we go through bail-in (salvation from own ranks), and I am convinced that markets Consider it as a sensible, very specific and direct accessrather than a very general approach ... It will oblige all financial institutions, as well as to investors wondering risks that undergoing, as it would give rise to them later loss. Their risk is.

We think it quite clear Eurogroup chief vystihol this new model. Basically, this is such a model, what should be the standard used. Shareholders bear losses first and then bond holders and depositors with deposits of over 100 thousand. euro. Such a model has already been used in the European Union, and essentially means that banks no longer have the certainty of a systemic support from the EU. ESM was basically worthy to trash and banks was also cut off support of System-foot stool on which you sit.

Eurozone fears the bankruptcies of banks

While bankruptcy is the normal removal tool to push, carry risk and losses of entities that have their poise, in Europe is still losing as they take something that is bad. While in all major U.S. banks already typed your recent willingness to be clearly knew what with them in case of problems do, in the euro zone problem occurs because the banks are as big a problem. Own shareholders' capital have very few, who deposit and bonds is in great abundance. Therefore, it is a response to such reports weft capital from these institutions.

Cyprus is just another of a series of special cases,

To the weft was not significant, today came from the media politicians to yesterday's comments denied the Dijsselbloema. The office itself Eurogroup chief statement came the process of macroeconomic adjustment is tailor-made a particular country, and are not used no models or templates.ECB's Nowotny again said that Cyprus is a special case and is not a model for other rescues. Spain's Finance Minister de Guindos said again that cyperský rescue model was unique and not used in other countries. Benoit Couer from the ECB also said that the things I cyperská unique.

The ECB does not want to see a reality

Couer from the ECB also said a big pearl. He said that the euro area needs to co-and that the euro area needs to identify their problems sooner. If we look at it, why Iceland found myself in a crisis or why Ireland had to be rescued, it is clear that one of the biggest problems of the euro area has already been identified.

Banková bubble

The attached chart from the Financial Times shows that Cyprus as well as Ireland were a large problem, yet no two bigger pending possible subsequent problems. Regards financial markets, Malta and Luxembourg. Assets of banks is luxemburských Achieve to 22.5 times the country's GDP. In contrast, Spain's financial sector is small, and even below the EU average.

Imbalances in the euro area remain

Eurozone and even five years after the initiation of their own crises has all the essential problems: huge imbalance between the North-South, an inability to agree on a higher integration, which would help to ensure the viability of monetary union and still has a huge banking industry that creates large risks. Who are not removed all of these risks, the euro area will flounder.

Cyprus is waiting for more than just the lost decade

How badly can end up countries that applied bad policy, shows the Greek example. A couple of years about the steps we look also to Greece. According to estimates by Societe Generale drops to 2017 cyperské GDP of around 20%. A similar view has also Exotix hedge fund with the difference that such a sharp slump expect it until mid-2015th Cyprian Professor Hari Tsoukas again estimates that the unemployment rate on the island may be from your current level doubled to 30%. This means that Cyprus is lost waiting at least a decade. The next 10 years to return to the period when the crisis from under nominálnom not expect GDP.

Author: John Benaki | TRIM Broker, as |Trading on exchanges TRIM Broker

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