Some very dark thoughts here form SocGen’s Ciaran O’Hagan, who thinks the market is being altogether too sanguine about the Cyprus sutation (the market’s hardly moved at all).
In a matter of days, a modern functioning Western economy has been transformed into a cash economy, if not quite a barter one yet. Coinage is being hoarded, stores are refusing credit cards, commercial credit has ceased.
True, that can all be quickly reversed if a compromise is conjured up now. What will never be reversed so easily is the threat of capital controls in a supposed monetary union. The Republic of Cyprus may still avoid such a draconian measure. But that’s not the point. If the Cyprus economy can be sent backwards 50 years so easily, we now know the same can happen to other euro area members. And in a matter of a few days, as we’ve just seen. And the next crisis (surely there will be more) is likely to hit a member with a large and functioning bond market. Investors will be quicker next time round to remember he precedents set by the Cypriot Republic.
Meanwhile, according to AFP, Cyprus will present a new “Plan B” to Parliament, after the initial plan to tax depositors was rejected without a single vote in favour of the plan.
NOW WATCH: Money & Markets videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.