In Just Days A Modern Economy Has Been Set Back 50 Years, And It May Never Be The Same Again
Cyprus needs to raise another 5.8 billion euros, which it could do from some combination of deposit taxes, Russian money, and pension nationalization.
None of the options are good, but until it's done, banks will likely have to remain closed, a situation that can't go on much longer.
This is a stunning turn of events for a modern Eurozone nation.
And SocGen's Ciaran O'Hagan argues in a note that the market (which hasn't really moved at all on Cyprus) is being too blase about the whole thing.
It's incredible that this can happen, and the precedent its set will linger for a long time, if not permanently.
He writes in a note:
In a matter of days, a modern functioning Western economy has been transformed into a cash economy, if not quite a barter one yet. Coinage is being hoarded, stores are refusing credit cards, commercial credit has ceased.
True, that can all be quickly reversed if a compromise is conjured up now. What will never be reversed so easily is the threat of capital controls in a supposed monetary union. The Republic of Cyprus may still avoid such a draconian measure. But that’s not the point. If the Cyprus economy can be sent backwards 50 years so easily, we now know the same can happen to other euro area members. And in a matter of a few days, as we’ve just seen. And the next crisis (surely there will be more) is likely to hit a member with a large and functioning bond market. Investors will be quicker next time round to remember he precedents set by the Cypriot Republic.
As we argued earlier. The Eurozone is a gigantic wreck, and its luck appears to be running out.