Don’t want to depress you but… more on Cyprus, and what next?

The banking crisis in Cyprus is almost certainly not over.  The draconian capital controls imposed to stop mass withdrawals from Cypriot banks may stop any immediate panic, but it seems likely that as soon as they are relaxed, money will pretty quickly flow away from those organisations.

Perhaps small depositors will trust the promises that deposits are safe, but the apparent willingness of the authorities initially to raid even those supposed protected savings would make me very nervous if I was a depositor. And if you are a larger client, and 40% of your cash or more has disappeared, then you would have to be remarkably sanguine to leave what remains in the same supposedly “safe” place!

So there may well be further trouble to come in that country. And it’s impossible to say what the “contagion” effects might be in other European countries. That might arise from a confidence issue, if for instance, larger depositors decide that their money isn’t safe in Spanish or Italian banks. Even Luxembourg might come under pressure; that tiny country has the largest ratio of bank debt to national GDP of any European country – that was one of the issues quoted as defining the Cyprus problem.  One article last week suggested that Slovenia might be the next country in trouble (cue much looking at Google Maps...)

Cash-rich businesses all over Europe will certainly be thinking hard about where they can safely keep that cash. (And indeed individuals should do the same; I really would not hold more than the insured amount in any single European bank now. I’d be nervous  about having less than the maximum insured amount in certain banks, to be honest).

In terms of procurement and supply chain issues, Cyprus may not be high on many organisation’s lists of key supply sources, but it is of course worth checking to see if you have any key suppliers in that country. Keep close to them – whilst they will no doubt be delighted to have our money coming in, they may be going through cash flow problems or worse.

Wider impact is impossible to predict. But at the very least, this shows the importance of having a good “map” (literally and metaphorically) of where your key suppliers are based. Where would you be vulnerable if contagion spread to Italy, Spain, Ireland, Slovenia...?  Making sure you have that knowledge and perhaps some basic contingency plans in place would be sensible  steps to take, if you haven’t done so already.

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First Voice

  1. life:

    Is a good link. Loads of twists and turns to this if/when it happens – money in / linked to offset mortgages would be considered savings until the account is settled, even though it’s matched against the debt? Pretty sure none of the debt would be written down though!

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