At the moment the ministers of the Euro-zone have to evaluate the validity of the Cyprus proposal to raise the money necessary to avoid bankruptcy of the country.
In these hectic days, hypotheses to recover the 5,8 billion euros needed for the rescue by the European Union, thus avoiding the immediate and probable financial meltdown take the exit (uscita) from the euro, several have circulated: differentiated forced levy on deposits, creation of a solidarity fund by committing state assets, a creative combination of the above. In the end the Cypriot Government has given birth to two laws in this regard, freshly approved, which provide for a large forced levy (up to 40%) on deposits over €100.000, closure of the Popular Bank of Cyprus and control of capital flows abroad… The Government of Cyprus has stated that it “be within hours of solving“, but in reality he still has to discuss the plan with the woody European finance ministers on Sunday the 24th in the evening, in Brussels. I would say that the best thing is to wait and see when the dance of the Cypriot politicians ends (a real, tragicomic “delusion”, known to Tim Burton fans).
Whatever the cost, however, the solution must emerge very soon. Because what is surely running out is the time before the closure, Monday 25 March evening, of the taps of the Emergency Liquidity Facility (“ELA”) by the ECB, unless a credible plan is presented by the Island Government. This is the "deadline" that matters most.
At the moment they appear help from Russia is unlikely, who has declared that he does not want to provide further financial support to Cyprus, apart from renegotiating the conditions of the existing loans (loans that have contributed significantly to keeping Cyprus on its feet in the last two years, ed).
La European Commission, through the mouth of the spokesman Simon O'Connor, meanwhile declared in the press conference "to have put the fifth” (…uuhh fear, the techno-sloths very fast…) and not to exclude, in an extreme situation, freeze uninsured deposits (i.e. above 100.000 euros) and the closure of the largest banks of the country. In fact, the institutions are already closed, to avoid bank runs, with the relative migration of euros abroad.
Risks for Italian deposits and current accounts
Direct risks for current accounts and deposit accounts in Italy are practically non-existent for the time being. Because, if that were the case, it would be Cypriot deposits that would be eaten away by a forced levy, certainly not the Italian ones. Furthermore, the exposure of Italian banks to Cyprus is very low (the same cannot be said for German banks), so that certainly won't be the factor that could cause our own banks to falter.
What should you pay close attention to, then?
To the indirect risks… firstly, in the event of a financial meltdown of Cyprus and a possible exit from the euro, it is not clear what could happen: the world economic system it is a complex system, like the earth's atmospheric conditions, ed it is therefore inherently unstable. Small variations in trader behavior could have very different consequences (just as a butterfly flutter in the Gulf of Mexico can cause a thunderstorm in Europe). Among the possible consequences – I repeat, “possible”, certainly not the most probable – there is a effect contagion: in fact, the real dimension of Cyprus and its crisis does not count as much as its psychological value, which highlights the weakness of the Eurozone and its “unique cases”. If there was contagion, then yes there would be fear of Italian banks. However, I am confident that we will find a way, perhaps not brilliant, to put a patch on this situation. It would be the last word, a European contagion coming from a country, Cyprus, whose surname Governor of the Central Bank is Panicos.
Secondly, if the deposits were ever touched (which together with depositor confidence are the core of the credit system, which makes the economy work)would be a very bad signal for all depositors in the Eurozone, even if this is probably the best technical solution for not raising the debt/GDP ratio. The forced withdrawal in Cyprus today would be interpreted as an emergency action that can be replicated in other countries in difficulty: this could cause, at the slightest hint of problems, ran to the door in Spain and Italy. I remain of the opinion that they were wrong even to mention them, the deposits…
Fear? Here's how to defend yourself
A wallet that protects savings in case of breakup of the euro we at Advise Only have created it, and it is at your disposal: it is the Anti-Crisis wallet EuroTsunami. We rebalanced it slightly last week, along with the other Anti-Crisis portfolios. Look at what leap he's made these days: he's doing his job, that is, defending in the event of serious problems in the Eurozone (hopefully, he'll probably get by). In the last month alone, as of the date of writing of the post, the performance was +2,80%!
If instead do not have great fears and believe (like me) that, all in all, the emergency will be resolved, could be a good time to invest in other Anti-Crisis portfolios (who have done well these days anyway, or at least "kept a bump").
