Monday, March 18, 2013

The Cyprus Moment
This past weekend, euro zone finance ministers agreed on a shocking bailout plan for Cyprus. It requires bank accounts with balances above €100,000 to be taxed at 9.9%, while those with less will be taxed at a 6.75%, to raise €5.8 billion for the near-bankrupt nation. This marks the first time in the euro zone crisis that depositors in the bloc's banks will lose money. This unprecedented move to make depositors contribute to a bailout is stoking fears of deposit runs hitting all fragile euro zone banks.

I don’t expect this “Cyprus Moment” will turn into a Lehman Moment for the euro zone. However, the plan could shatter the calm in the euro zone following the pledge at the end of last July by ECB President Mario Draghi to do whatever it takes to defend the euro. The only upside is that we won’t have to worry about irrational exuberance until this latest mess in the Euro Mess is cleaned up.
(Based on an excerpt from YRI Morning Briefing)

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