Don't Be Fooled By The Calm In Cyprus

Reporters crowded around banks, prepared to cover a rush.

However, they were probably disappointed.

The reopening has been very orderly, and there are no signs of panic or a massive run on the banks.

As is well known, regulators have imposed capital controls to prevent runs from happening. Among other things, they have limited cash withdrawals to 300 euros.

So, if there's going to be any action in Cyprus, it'll likely happen in seven days when the capital controls are lifted.

Here's TD Securities' Richard Gilhooly on the matter:

...Capital controls were lengthened to 7 days from 4 and only after controls are lifted would it be clear what the true ramifications are. If controls are in fact lifted after 7 days, large deposits from overseas customers are highly likely to be withdrawn, assuming they have another haven to move to.

This impact has merely been delayed, not avoided, and will possibly be seen 7 days from now. Should the numbers surprise to the upside, it may well be that controls are re-imposed and then it becomes clear that the capital controls are a disaster prevention mechanism that temporarily hold the parts in place before they disintegrate. Capital controls are officially not part of the fabric of the Euro as per Article 63 of the TFEU, although there are exceptions in terms of national security.

The hope seems to be that capital controls can be held in place until people forget about what happened and then go about business as usual, with perhaps 10% or so capital outflows assumed...

So, we'll have to check back next week.