Eurogroup comments sent markets into Free-fall

Currencies Direct March 26th 2013 - 2 minute read

Investors panicked yesterday
following the head of the Eurogroup stating that Cyprus’s bailout
could set a presidence for similar deals that involve bank
depositors. The situation showed little sign of easing last night,
with the Cypriot central bank saying that banks would now stay shut
until Thursday. Yesterday’s session was a game of two halves;
initially investors had given a cautious green light to save the
Med Island from economic failure. However peripheral stocks and
bonds gave back earlier gains when traders swiftly returned to safe
haven assets after Jeroen Dijsselbloem warned the new method could
be used in future bailouts.

“We should aim at a situation where
we will never need to even consider direct recapitalisation. If we
have even more instruments in terms of bail-in and how far we can
go on bail-in, the need for direct recap will become smaller and
smaller,” he stated.

“I think the approach needs to be,
let’s deal with the banks within the banks first, before looking at
public money or any other instrument coming from the public side.
Banks should basically be able to save themselves, or at least
restructure or recapitalise themselves as far as possible.”

This latest scheme differs from
former bailouts where savers have been left unharmed .In Cyprus
insured depositors in distressed banks and all savers in other
lenders kept their money, while those with uninsured sums in the
failing banks took sizeable hits. A bad bank is being formed and
the remains of second-largest lender, the Popular Bank of Cyprus-
or Laiki will be merged with the Bank of Cyprus.

Finally over to the US and consumer
confidence is projected to drop back from a three-month high,
demand for large-ticket items are expected to surge 3.95 in
February, while the S&P/Case-Shiller Home Price index is
estimated to show a year on year figure of 7.8 percent in January,
which would signal the sharpest return to growth since June 2006.
The anticipated 3.9 percent drop in New Home Sales may have limited
impact after marking the biggest advance since 1993 during January,
while the Richmond Fed Manufacturing index is likely to hold firm
at 6 in March.

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Currencies Direct

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