Forex Flash: Europe unlikely to unravel on Cyprus – Deutsche Bank

FXstreet.com (Barcelona) - The Cyprus situation still stands in systemic terms – a slow burner of an issue more than an immediate macro shock but not one to be under-estimated in importance medium-term. According to Macro Strategy Analysts J. Reid and C. Tan at Deutsche Bank, “For now assuming the proposal gets passed (the votes are seemingly not yet there) and even better watered down with small depositors bearing less or even none of the levy, Europe will likely only see small short-term collateral damage.”

However in spite of the protests that Cyprus is a unique case, the incident has probably ensured that if a bank or banking system in Europe is again under strain then depositors are, as a minimum, likely to be on the table as a bargaining tool and these depositors would be rational to think hard about the safety of their money and potentially seek alternatives.

However if you're looking for a positive, the outcry over the turning back on the pledge to protect depositors, especially those with less than 100k, might perhaps persuade the EU to tread more carefully in the future even though where the levy was set may have ultimately not been their call. They did sanction the deal though and perhaps both the EU and the Cypriot Government have been surprised by the verbal backlash, even if markets were less aggressive in their reaction.