A bad idea
- UBS does not believe that the Euro will break up. We still do not believe that the Euro will break up. The bail out of Cyprus over this weekend has not helped that conviction, however, and contagion risks are higher as a result of the terms of the bail out.
- The "wealth tax" on all Cypriot domiciled bank deposits is effectively a grab of deposits. No matter what assurances are offered, it is likely in the future that depositors in ANY Euro banking system that is considered at risk of requiring a bailout will be more inclined to panic and withdraw their deposits in anticipation of similar treatment.
- Every Euro area finance minister should be reminded, daily, that history tells us that monetary unions die as a result of bank runs. Preserving confidence in the integrity of banking systems is critical to a stable monetary union. Moreover, people will irrationally overreact to even a small threat of losing what they already own.
- Elsewhere, Italy's Bersani got a speaker elected to the lower house and the Senate of the Italian parliament, but the level of support for his candidates underscores the weakness of parliamentary support for any possible Bersani administration. Euro trade data and US housing data make the calendar today.
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