Could Cyprus Take Down the EU Banking System?

Phoenix Capital Research's picture


The EU continues to flounder around as Cyprus, a country whose GDP accounts for just 0.2% of the Europe’s economy, has proven the truth behind all of the “solutions” thrown around by the ECB and EU politicians: that they really don’t have a clue how to fix the problem plaguing Europe.


Why is this?


Because at the end of the day, there is really only one solution to this whole mess: DEFAULT… both by the banks and by EU nations as a whole.


What happened to Wall Street in 2008? Banks that were over leveraged (meaning they borrowed far more money than they actually had on hand) went bust because the assets they bought with the borrowed money fell in value to the point that it erased the actual money they had on hand.


Think of it this way, if you borrow $30 for every $1 you actually own, and you invest that $30 in various assets, you only need those assets to fall 3% (0.03 * 30 = 0.9) before you’ve wiped out almost all of your actual money (the $1 you owned and which you borrowed the $30 against).


This is what took down Lehman. And it’s what is taking down Europe today. The entire European banking system is leveraged at 26 to 1. Lehman was 30 to 1, Europe as a whole is only slightly below that,


And where did they invest the $26 in borrowed money?


EU sovereign bonds… (as well as garbage mortgages in the various EU housing bubbles).


When you are leveraged at $26 to 1, you only need the assets you’ve invested in to fall 4% before you are totally bankrupt. This 4% drop in asset prices has already happened across Europe, the only reason that we haven’t seen a systemic collapse there is because Mario Draghi, the head of the ECB, said he’d buy unlimited amounts of EU bonds.


Note, Draghi said he would buy these bonds, he hasn’t actually bought anything since he said this.


So why did Draghi’s statement matter?


Because the primary assets owned by EU banks are EU sovereign bonds. And if EU bonds keep falling, it results in the dreaded 4% drop in asset prices that would wipe out all the EU banks’ capital.


So Draghi stepped in last summer, promised to buy EU bonds, EU bonds went up,  and EU banks could breathe a sigh of relief… for a while.


But anyone with a modicum of common sense can look at this situation and say, “but wait, nothing was actually fixed, all that happened was Draghi promised something and the markets reacted.”


PRECISELY. And that is what Cyprus just proved: that the ENTIRE EU “fix” was a huge lie. Nothing changed. Nothing was fixed. The banks are still leveraged at 26 to 1 and sitting on loads of garbage debts. And the EU countries are all still totally bankrupt.


If you are not prepared for this… prepared for potential systemic collapse brought about by Europe…YOU NEED TO ACT NOW.


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This report features ten pages of material outlining our independent analysis real debt situation in Europe (numbers far worse than is publicly admitted), the true nature of the EU banking system, and the systemic risks Europe poses to investors around the world.

It also outlines a number of investments to profit from this; investments that anyone can use to take advantage of the European Debt Crisis.

Best of all, this report is 100% FREE. You can pick up a copy today at:


Phoenix Capital Research








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SmittyinLA's picture

The answer is a definite Gimmie.  Take a look at a map of Cyprus.  Right there in the friggin middle is Mount Olympus.

They are all clearly awaiting the Deus Ex-Machina. 

Lordflin's picture

Well... it comes as a shock to find that Europe is broke. Next thing I know you will be telling me that the US is broke too...

XenOrbitalEnginE's picture

What are hard-asset old school Europeans using in place of the type of FDIC Deposit Insurances the US has?  It is a case of some people hoarding land (and stuff)  and others getting No Assurance accounts?


Wait, this kind of answers itself...

Jack Sheet's picture

I agree with James Bond. The trouble with ZH is, whenever you go to the website, stale yesterday's-news crap like this (and nothingspeak like Muck to Market) appears directly under your mouse pointer in the top line. Now if these articles were positioned down bottom R next to the bikini shorts of the Thai girlie ads, it would be a lot less intrusive.

digitlman's picture

Stale shit is the hallmark of Phoenix "Research".

Element's picture

I just wish he'd try ... reads like a bot wrote this stuff ... and not a very good one.

NEOSERF's picture

The real question is whether Cyprus can take down Greek banks which will require yet another emergency loan in the next week.  Longer term, if I am in one of the PIIGS and have any money in the bank...I am taking half out now, which will exacerbate capital issues heading into Basel III

Mr. Hudson's picture

If there is a systematic collapse, people will need guns, food, water, and friends to survive. There. I gave the solution, and you didn't need to subscribe to my newsletter for $49.95 a year to find this out.


kchrisc's picture

Let me summarize: they, the pols, crats and banksters, are trying to keep the whole criminal fraud music going to maintain their power, their profits and to keep the inevitable guillotines at bay.

However, some drunk just bumped into and knocked over the DJ table--music over, party about to be.

The guillotines are on order.                 hujel

Paracelsus's picture

Ah,but someone always has the other side of the bet.CDS insurance on sovereign bond default,boys and girls?  Remember the confusion on declaring whether Greece had defaulted or not according to the ISDA,a group made up of the primary dealers. If they paid out they lose a packet.If they didn't pay out then they would crush the CDS market (huge). They ended up declaring a technical default (kinda like when your wife tells you she is a "little bit pregnant"). Also,see Iceland CDS payout history. The problem is that defaults should happen,in order to bring RISK back into the equation. Bailouts are the worst possible solution (see Japan) keeping the toxic sludge in the system. Write off the bad debts and start over.Allow the market to price the assets and risk without interference.

The ancient Carthaginians ( descendants of Phoenicians) knew this policy well.Hire a bunch of mercenaries to fight wars,open markets,some win, some fail,but it all ends up well in the final reckoning. Some were justified risks,and some were no doubt minor disasters. But I doubt anyone got bailouts.

Son of Loki's picture


I forgot about that itsy bitsy tiny detail -- LEVERAGE !!!!!!


"Think of it this way, if you borrow $30 for every $1 you actually own, and you invest that $30 in various assets, you only need those assets to fall 3% (0.03 * 30 = 0.9) before you’ve wiped out almost all of your actual money (the $1 you owned and which you borrowed the $30 against)."


BTW, I read many banks were leveraged 72:1 in 2008. Now many are 16:1 from what I've read. Anyone know if that's correct?

RebelDevil's picture

I like this article, right to the point!
My question is, how do we know how far the banks are leveraged? Where is 26:1 coming from?

hannah's picture

the banks already 'defaulted'...that is why they need to be bailed out. as long as the system accepts printing money, the banks will remain 'solvent' on paper. when it stops EVERYTHING STOPS....hahaha!

akak's picture

Europe bankrupt?  No!  Say it ain't so, Joe!

Scro's picture

I hope not, all of my gold is sitting in the BOE. I hope it's safe.

JamesBond's picture

Completely regurgitated and usless essay bitchez



ebear's picture

Yep.  Never let a good crisis go to waste.

Tinky's picture

"Could Cyprus Take Down the EU Banking System?"

One can always hope.

Ghordius's picture

wait a moment. since when is there an EU banking system at all? there isn't even one at eurozone level, as this Cyprus affair can attest. "banking union" is still only being talked about

Manthong's picture

Default is the only way out..

after absolutely every conceivable as well as inconceivable maneuver, scheme, distortion and lie is used to extend the Ponzi and delay the declaring of a default.