While offering up some 'hope' that the unprecedented tax on Cypriot deposits will not spark "massive" contagion (due to the ECB's "promise"), it appears from this summary of sell-side opinion on this weekend's European developments that the sell-side is starting to panic... it would appear the European credit markets, that have been so skittish in recent weeks (especially the financials) [6], had it right all along? whocouldanode? It seems, as the head of the European Parliament's Economic and Monetary Affairs Committee, no less, said: "The lesson here is that the EU's single-market rules will be flouted when the Eurozone, ECB, and IMF say so."
Via Bloomberg,
Holger Schmieding, chief economist at Berenberg Bank:
- Optimistic this will not spark “massive” contagion thanks to ECB promise that it will do all it takes to keep reform countries in the euro
- The risk that this “could backfire is not zero”
- We are in “unchartered territory again”
Charles Diebel, head of market strategy at Lloyds Banking Group Plc:
- Given that the agreement was announced after banks in Cyprus had closed for the weekend the chance of capital flight is “unlikely” as it’s already too late
- The tax will “increase nervousness” and pressure peripherals at least in the short term
- Could pressure the euro
Alberto Gallo, head of European macro credit research at Royal Bank of Scotland Group Plc:
- Cyprus a special case with bank assets of EU125b over 7x the size of the economy
- Unique also as Cypriot banks have only EU2b of bonds outstanding, making bondholder bail-in ineffective
- Possible that some small periphery banks may suffer deposit outflow to larger firms
Annalisa Piazza, a fixed-income analyst at Newedge Group:
- This will spread “some panic” across the euro area periphery which could result in capital outflows
- Will have impact on concern that similar measures could be applied elsewhere
- Some weakening of the euro cannot be ruled out
And from an 'insider' - Sharon Bowles, head of the European Parliament’s Economic and Monetary Affairs Committee, said:
- Levy on deposits agreed under Cyprus bailout deal means circumventing EU deposit guarantee laws
- “It robs smaller investors of the protection they were promised,”
- “The lesson here is that the EU’s single market rules will be flouted when the Eurozone, ECB and IMF say so,”