Its a masterstroke on behalf of the ECB and the IMF. Perhaps they learned from the Iceland experiment where a debt that can't be paid, won't. Cyprus has a finance sector many times its GDP, with foreigners having invested heavily in cypriot banks, and in turn the banks shoveling into Greek bonds.
The ECB defends sub 100,000 euro depositors, which keeps individuals and business out of hock. But the Russian Oligarchs are left out in the cold. The capital that can take flight out of Cyprus will, leaving it with the same prospects as Greece.
Balance sheets are now looking more precarious for the European banks. They have been the core reason sovereign bond rates are so low. The precedent is there are a set of banks worth saving, and others who will be firewalled from the market, then closed.
When banks start looking less viable as safe investment propositions, its other markets that will float. The Australian experience has been just that. While these banks are in no risk of failing, falling bank interest rates have arguably been the reason for a 20% lift in equities over the last year.
Easing by central banks have done a lot in keeping inflation ticking along. But capital is borderless, it sloshes about the globe inflating perceived growth prospects. This makes it very difficult for the value investor in finding long-term prospects. The investment world is certainly more speculative that it ever has been.
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