The Shocker from Cyprus: A Roundup of Analysts' Reactions

TREND MACRO, Lorcan Roche Kelly: "Reports on depositors being in the firing line have been circulating for weeks, and so it is not a surprise that the bail-in has been announced. However, the risks -- beyond upsetting Cypriot depositors -- are unknown. The rather bold assumption on the part of the Europeans is that this will have little effect. They may well be right. There have been rumors of a depositor bail-in for weeks and there have been no signs of flight. The ECB has promised to back-stop any disruption -- that is a promise that we can rely on. However, the risk is that depositors outside Cyprus will take fright and start to leave their banks. The euro has no single treasury backing it. Therefore, more than any other currency it has to rely on trust to maintain its value. With this deal, the euro area is testing the trust of both the markets and ordinary depositors. It seems likely that it will pass the test, but the judgement is out of its hands. Bank deposit flight can be [handled]. Trust in the currency cannot so easily be restored."

Sunday, March 17, 2013
The Wall Street Journal