Forex Flash: Eurogroup deal with Cyprus as the best now possible – Commerzbank

FXstreet.com (Barcelona) - Commerzbank analysts believe that the Eurogroup €10B agreement with Cyprus was the best now possible: “Initially it will be of interest to work out who gave in in the end. The answer to that question is more than obvious: Cyprus did. The banking sector will be restructured radically and the creditors of the banks will have to cover most of the costs”, wrote analyst Lutz Karpowitz, cheering Eurogroup’s steadfastness, positive for the euro as clear boundaries were set for future problem countries.

Also, the Eurogroup gave in to the Cypriots where this was possible, with small investors being protected, and the Cypriot Parliament won’t be required to vote on this deal as it is made via banking sector restructuring.

However, there is one problem. The Parliament has agreed on limiting the movement of capital as customers would withdraw their funds as quickly as possible. “No doubt these measures will have an effect, but clearly they cannot constitute a permanent solution as it would put additional strain on the Cypriot economy”, Karpowitz said. “The earlier the restraints were lifted the more capital would flow out of Cyprus. So the ECB will have to prove a good sense of timing on this matter in the weeks to come. By setting an ultimatum for Cyprus the ECB has also made it clear that it will not be taken up the garden path in the long run”, he concluded.