Agreements with the Euro Group seem to have prevented a default of the Cyprus economy. On Monday, the finance ministers of 17 eurozone economies signed a preliminary agreement to provide Cyprus with financial support estimated at €10bn. The idea of a one-time tax on bank deposits was denied.
Will these events eventually have a positive impact on the Euro currency exchange rate? Will the common currency manage to stabilize? Let’s ponder on these questions together with .
Can Cyprus Bailout Stabilize Euro?
The essence of the problem is that Cyprus is not the last risky eurozone economy. Slovenia may well become the next victim of the banking crisis. experts report that Slovenia’s banking sector has recently seen a lot of bad debts. The average amount of bad debts throughout the country is around 15%. At the same time, the country’s 3 biggest banks (including Nova Ljubljanska Banka, NLB) report that each 5th loan turns into a bad debt.
Nova Ljubljanska Banka ended last year with a major loss – €275 million. Moreover, earlier last week, Moody’s Investor Service cut the rating of Nova Kreditna Banka (another major bank) from B3 down to Caa2, with a negative forecast.
The new Slovenian authorities seem to be willing to restructure the country’s banking sector. They promise that Slovenia won’t follow in Greece and Cyprus ’s steps.
Still, experts are sure that it is Slovenia that will be the next eurozone economy to see its banking sector falling into crisis.
Euro Currency Prospects
According to Maxim Gunn, a leading trader and expert from says:
Depositors are afraid that the Cyprus crisis will have a negative impact on European bond markets in general. Moreover, the prolonged political crisis in Italy only adds fuel to the fire. In this negative environment, it is very difficult for the common European currency to find support and bullish drivers.
Therefore, EURUSD may well drop to the 3-year low because the situation around Cyprus and its controversial resolution along with other negative factors may eventually destabilize the situation in the EU and the eurozone.
To sum up, the Cyprus bailout only raised more concerns among analysts and European bank depositors instead of calming them down.
