Cyprus jumps into bed with Russia and bounces straight back out again

The Cyprus saga continues to
dominate Euro trading, but there looks to be an end in sight after
Cypriot finance minister Michalis Sarris left Moscow without a
Russian backed deal in place. Whether a deal was ever on the table
or was simply a bargaining tool by the Cypriot government is
unclear, but not even an extension to a €2.5 billion loan was
agreed, the very minimum hoped for. Today the Cypriot parliament
will vote on proposals to restructure the two largest banks
imposing up to a 40 per cent tax on deposits over €100,000
according to reports this morning. Under the 100K mark are expected
to be protected. With Banks closed until Tuesday a ‘no’ vote today
would not be the end of the world, but would certainly test the
patience of its Troika paymasters which is already at breaking
point after an initial deal was rejected and Cyprus tried to hop
into bed with Russia. In fact German Chancellor Angela Merkel
stated Monty Python style in parliament this morning that Cyprus is
a very naughty country indeed. We can expect this to go down to the
wire. The Euro will remain under pressure until a deal is in
place.

Away from the Euro zone and the
debate over Wednesday’s budget rumbles on, mostly over government
backed guarantees for mortgages and a relaxation of planning law’s.
You get the feeling George Osborne would happily have cancelled
this year’s budget, but obliged to say something he trotted out the
very minimum possible. Sterling was relatively unaffected by a
fairly bland fiscal budget overall, so we’ll leave it at that. More
importantly Mr Osborne did announce new powers for the Bank of
England, including forward guidance and the Banks new powers that
will dictate the path of the Pound over the coming months.

Next week should be a busy one with
the early part taken up with a bail-out of Cyprus (hopefully). US
durable goods orders and consumer confidence follow midweek and
finally German unemployment on Thursday.