Saxo Bank (Saxo Bank)
Markets  |  April 03, 2013 10:42:40

Cyprus is not a problem, but the Euro

After a few weeks of very demanding, I would like to summarize their positions to Cyprus and I will try to give a different look. It's amazing how long can the world be paralyzed desetimiliardovým bailout. In this case, the size of the margin is not critical, they are some of the conclusions drawn from the resulting solution.

One of them is the fact that small economy can be effectively amortized over the weekend. But fate was sealed in Cyprus before, when Troika revealed its first version of the bailout. The fact that the final version is even worse, it would come as no surprise. After all, we know how it dopadává when Europe is trying to save itself. Among individual declarations missing link, between steps lack of coordination. Epic vision of saving the euro are knocked out late at night on a napkin from snacks.The result then corresponds to reality: it is tragic.

vlajka kypr 1100 300x199 Problémem není Kypr, ale Euro

However Cyprus deserve for their actions such a fate? He does not deserve. From Cyprus came solid data on growth and public debt, at least in comparison with neighboring countries. Cyprus has a stable financial sector. Cyprus labor force is powerful and speaks English, and its legal system is based on the British. So overall it's not a bad place for business.

That sent things the wrong way, was the fact that Cypriot bankers believed to repay debts of European politicians. Since Cyprus with Greece strongly bound, it is not surprising that the Cypriot banks have a large exposure to Greek debt. This behavior is very different from that of other European banks and their access to public debt.

From the discussions I had with high standings financiers in Cyprus, revealed that the bank was developed considerable political pressure to hold Greek bonds. Concentration risk was largely underestimated, but this little justify the fact that the euro area will help its members in need, including Greece. If you recall, a few years this fact sort of innate unwritten rule that enabled the convergence of bond yields.

Bank of Cyprus, of course, does not absolve any guilt. All these problems are not due to mechanics eurozone together in one. Were it not for this mechanism, far fewer foreigners in Cyprus should saved your money. The market for bonds denominated in drachmas would definitely avoid debt growth in such monstrous proportions. Greece would not have to resort to default, it could go the way so many times used devaluation.

Instead, the problems have increased in size, which would in a free capitalist market can not achieve. Now in the euro area meet with limited withdrawals from the banks, control capital flows and de facto property taxes. In such a way, of course, can not exist Euro. Now there are two Euro Limited in Nicosia and yet infinite in the rest of the euro area. I think that in the future we will see more similar versions of the Euro. We can already hear the names of other candidates. Slovenia? Malta? Or any other country?

The Financial Times recently reminded us words of Friedrich Hayek, who warned of capital controls.

At first it may seem, the state capital of the markets of foreign currencies affect the private sector very little or not at all. Lots of people will be indifferent to their introduction. However, the experience of countries of mainland Europe shows us that this is the first step to totalitarianism and the suppression of personal freedoms. In fact, it is the transmission of freedoms into the hands of tyranny of the state. Escape from this trap, not only the rich. Nobody can escape from it. (The Road to Serfdom 1944)

Let us, therefore, before these newly introduced tools beware. Control the flow of capital were the first such. What looks like a property tax, was the second.

I think that the events of the past weeks a lot of shuffled cards. Now we have to expect from the European crisis really anything.

Today's interpretation of democracy is very unclear. Decision-making power is probably the most brightest and most respected element. Preserve the rights of minorities are already huge respect not enjoy.

The easiest targets are obviously rich. Another target may be thrifty people. When will crumble unsustainable welfare state systems, it will be very easy to convince half the voters that the confiscation of private property in the interest of the greater good is a good thing. Boston Consulting Group calculated thatto redeem all of the current (not future commitments) of debt, you need 28% of total private wealth. This wealth has a common origin of your pocket.

In recent years, a number of problems. However, germs arose long before. It was such a lot of pressure on people and their right to have their own house, even if not met the requirements for a mortgage mortgage crisis. Furthermore, it was a huge welfare state with its benefits not only for the poor but for the middle class with a deficit problems. Or Euro, the great political project lacking real foundations.

Of course, many financial institutions in these bubbles ride. And I certainly share the blame for the current problems. However, the problem is not the people who benefited under the current conditions. Problem is the environment created by politiciansand which prevents the market to deal with the imbalances, as it always did the stock market. Yes, part of the capitalism is the removal of inefficiencies that can be painful. If, however, to resolve the crisis. And it seems to me much better than trying to save what is not already saved.

Cyprus is a prime example. Cyprus itself is not a problem. The problem is the Euro.

Lars Seier Christensen, co-founder and CEO of Saxo Bank .

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