Euro weakens as unemployment climbs

Euro/USD fell to 1.2803 as unemployment inside the euro zone fell to a record high 12,5 %.  The euro fell against 12 of its 16 most traded peers as unemployment continued to soar in Greece and Spain adding to concern of an even deeper recession. Unemployment in Greece  reached 26,7 % with 60 % of the youth without jobs. A mix of lower than expected  industrial manufacturing data and unemployment paint a grim picture for hopes of a quick recovery inside the euro zone.

 Asian stocks fell before later publication of new US job numbers.  The dollar index (DXY) which has fallen for the last days rose 82,920 as gold prices plunged 35 dollars to USD 1567 an ounce. Copper and silver continue to fall while oil prices are steady.  New York crude (NYMEX) has been trading above 96 for the whole week and Brent crude above USD 110 a barrel. The European Central Bank (ECB) which  along with the EU and International Monetary Fund, IMF, has been strongly criticized for its handling of the Cyprus crisis, meets on April 4th.

 As indicated in our Daily Report yesterday Cyprus has started a  blame  hunt for a crisis running out of hand. Finance Minister Michael Sarris who conducted the bailout negotiations in Brussels and afterwards came empty handed back from Moscow, resigned on Tuesday and was replaced by Labour Minister Haris Georiades.   Sarris has for the last year served as President of the Board in the bankrupt Popular Bank of Cyprus, Laiki.  Over the last months Laiki received billions of Euros from ECB in emergency funding.


The use of these funds will be part of a special investigation conducted by three special judges appointed by President Nikos Anastasiades. The judges shall within three months present a report on whom bear responsibility  for the crisis. Bank of Cyprus (BOC) and Laiki Bank were till recently regarded as solid profitable national flagships. The two banks have over the last 2 – 3 years lost billions of euro on speculation in Greek treasury bills and unsecured loans to Greek individuals and companies.

 President Anastasiades himself came under fire yesterday when it was known that a company headed by his son in law and other relatives presumably transferred 21 million euro out of Cyprus just before the controversial EU decision to raid bank deposits took place. Anastasiades flatly rejected tip-off to close family members or any other  wrong doing;  “I never knew, and it was never possible for me to wage war until Saturday morning March 16th to avoid what they imposed on us and at the same time supposedly tip-off people”.

 Other politicians have received similar accusations which would  be subject for the investigations. Even if  lose accusations,  the tip-off suspicions illustrate what the Cypriot public regards as, too,  “cosy” relations between bankers and politicians.

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01 April 2013| Gloomy perspective for Cypriot investors

EURO/USD fell to its lowest level in four month Monday on concerns about the spill over from Cyprus bailout terms. The Euro hit 1.2791, just above the four month low of 1.2750 reached on Wednesday. The Euro was trading at a high of 1.3711 back in February. Trading activities have been low over the last days due to Easter holidays in Europe.

 The short and medium term effects of the Cyprus crisis inside the Euro zone are so far not fully digested. Russian investors are hard hit, but Western European companies and individuals using Cyprus for the same tax planning reasons have also suffered heavy losses as a result of the collapse of Laiki, The Cyprus Popular bank, and near bankruptcy of the biggest bank, Bank of Cyprus (BOC). This comes among rumours that the Cypriot banks lately have given politicians and close friends - favourable loans and credits.

 Small companies struggling to repay loans in Italy and Spain signal bigger problems on the horizon for the euro zone. Defaults by small and medium sized enterprises which are the biggest employers in Spain and Italy, are rising explosively spelling troubles for banks and countries in the heart of Europe’s debt crisis.  While Cyprus count for 0,2% of the total Gross Domestic Product (GDP) in the euro zone, Spain and Italy count for 28%.  Whether these countries will be able to pull themselves out of the crisis and avoid full-blown bailouts depends on their banks which are fighting with bad loans and decreased profitability.

 Recent news from the Cypriot Minister of Finance and the Central Bank tell that account holders would be hit much harder than firstly announced. Cypriot authorities are still putting strong restrictions on “safe” accounts with less than Euro 100 000 meaning that Cyprus for all practical purposes not any longer is a functioning member of a currency union. On deposits above Euro 100 000.00 - 37,5% shall be converted into shares in Bank Of Cyprus (BOC), 22.5% are going to be frozen and the remaining 40% might be used for recapitalization of BOC.

 This means that Russian depositors stand to lose billions of Euro in what Prime Minister Medvedev has described as a Soviet style confiscation of Russian accounts.  The Russian government will, however, not aid businesses that have lost money in Cyprus.  Deputy Prime Minister, Igor Shuvalov, stated yesterday that Moscow is going to continue to clamp down on flight capital to offshore financial centers. “It is a terrible shame that Russians lose money, but the government will not take action in such a situation”.

 Much of the Russian money in Cyprus, probably up to Euro 19 Billion in bank deposits, are flight capital where Russian companies and rich individuals have tried to avoid taxation in Russia. The authorities have formerly offered a tax amnesty for flight capital being brought back to Russia.
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