Cyprus Bailout – Fifth European Member To Fall Victim Of Debt Crisis

Timeline For Cyprus Bailout:


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  • June 25 5:06am EST – (CY) FITCH CUTS CYPRUS SOVEREIGN RATING TO BB+ FROM BBB- (Junk Status); OUTLOOK NEGATIVE. Cyprus banks will require substantial capital injections to secure confidence in Financial viability.
  • June 25 11:23am EST – (CY) Cyprus Govt said to be making its request for a bailout from the EFSF within hours – financial press.
  • June 25 11:56am EST – (CY) Cyprus Govt confirms that they have requested bailout aid from EFSF or ESM due to the Greek issues. Cyprus Minister notes that it is also expecting to receive an answer from China on aid within a couple days and that the discussions were positive.
  • June 25 1:41pm EST – (CY) Cyprus Fin Min: Bailout funds will be as much as needed for bank recapitalization and budget.
  • June 25 3:30pm EST – (EU) Euro Group welcomes the request from Cyprus.
  • June 26 3:23am EST – (CY) Euro zone officials: Cyprus bailout may likely be up to €10B (almost 60% of yearly GDP)
  • June 26 10:32am EST – (CY) ECB Cyprus Govt bonds now ineligible as collateral- Says Eurosystem will ensure stable funding of Cyprus banks – Cyprus banks will have to replace collateral or use ELA.

How to interpret these headlines?

Cyprus Bailout is now a fact, making it the fifth EU country to request for a bailout, following the steps of Spain, Portugal, Greece, and Ireland.  According to the timeline, one can clearly see that Cyprus only requested bailout AFTER Fitch’s sovereign rating cut, which in my opinion, sped up their timetable by at least a week and added unnecessary risk aversion sentiment to the already struggling Euro.

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Although Cyprus Bailout was well publicized in advance and market had plenty of opportunities to price in ahead, this new development will surely affect the credibility of the Euro for the medium term as investors wonder which nation will be next to fall victim of the sovereign debt crisis in Europe…  All in all I’d remain neutral on the Euro for the time being as risk aversion dominates the market.

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