Monthly Letter March 2013

Europe. Seems like we want to check out the size and depth of each hole we see. There is nothing like it. It is almost as if there is a will to get into these situ- a ons. The very much talked about Cyprus problem appeared to come at the poli cians like a curve ball, to borrow a baseball analogy. Numerous reports had been wri en about it, covering both monetary implica ons and the ming of the required injec on of capital. S ll it seems as if the nego a ons did not get underway with any kind of urgency un l the very last minute. The biggest problem though was that the European leaders don’t seem to be prepared for the if’s and buts and what it might mean for how the nego ated solu on will be interpreted by the market (and the people).

This me around we got a solu on rejected instantly by the market and with protests in the street not even the Cypriot poli cians themselves dared to vote for it. The way we read this was that the troika (ECB, IMF and the EC) only cared about how much money Cyprus would contribute to the overall solu on and didn’t care how they did it. That was the problem. The fact Cyprus decided that the burden would be shared by everybody who had deposits in the banks might seem fair, but when they were haircu ng the rst EUR 100,000 that was insured, they opened the oodgates. Who would be next? Was this the way the next bail-out would be nanced? In a strict technical sense the troika was right. They didn’t need to care. They contributed c10 out 17bn in bailout capital. How Cyprus got its money was none of their business.

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