No Euro Bank Is Safe Now
The rescue of Cyprus sets precedents for the euro zone that may stick in the memory of depositors and bondholders alike as investors debate who will next fall victim to the debt crisis. Under the terms of the agreement struck yesterday in Brussels, senior Cypriot bank bond holders will take losses and uninsured depositors will be largely wiped out.
The message that savers of all types can be coerced into helping a cash-strapped natio will make investors more fearful they’ll be targeted if Italy, Spain or even Greece again is next in line to need help. The risk is that bank runs and bond market selloffs become more likely the moment a country applies for a new rescue.
We now have a new type of rule and everyone within the euro zone has to sit down and see what that implies for their own finances.
Until now, euro region officials had left bank depositors and senior bondholders untouched as they tried to rescue the bloc’s struggling economies .
The Irish banking system collapsed partly because its government refused to renege on a guarantee to deposit holders made after Lehman Brothers Holdings Inc. collapsed.
The Cyprus crisis has opened up some precedents that will make investors more worried about how future euro zone crises will evolve.
They will swear black and blue that Cyprus is a unique case but so was Greece. I personally believe this crisis in particular has been handled badly and will cause problems in the next few months in many other countries.
Investors should take advice from a financial advisor. There is potentially another crisis in Euro banks I believe.
Nigel Green deVere Group
Blog written 26th March