Senior Wealth Manager at ChanPark International predicts that the euro will reach parity with the US dollar before the European debt crisis is fully resolved.
Cypriot lawmakers rejected a critical draft bill Tuesday necessary to qualify for an international bailout. The bill would have taxed all accounts 6.7 percent and 9.9 percent for accounts over 100,000 euros. The situation has called the concept of deposit insurance into question and left those with their savings in Cyprus banks questioning whether they will lose a portion of that savings. Cyprus has been hit harder than other Eurozone countries by the debt crisis due to its status as an offshore banking haven, but the difficult situation has caused many to question the safety of their money both in Cyprus and other countries. As the world takes note and questions the security of their deposits in European banks, at least a portion of those invested in countries where the stability of the banking systems is questionable will close accounts and move into more stable countries.
ChanPark International analysts believe that the worst is yet to come. Though it is unlikely that investors will lose massive portions of their investments in countries including Cyprus, Greece, Spain, Italy and Portugal, there is a strong possibility that some form of a tax system will be the only way to fund a bailout, and losses will be unavoidable. Some have suggested the conversion of accounts over a certain amount into 5-10 year CDs, but this would also trigger runs on banking and massive discontent among investors. Finally Cyprus or other failing countries could choose to leave the Eurozone and gain control over their own currency, but this would leave their currency massively devalued. None of the options paint an optimistic near future for Cyprus.
As investors begin to accept these possibilities as realities it is likely that massive withdrawals will exacerbate the problem. The Cyprus banking system is already a sinking ship in need of massive help, but Spain and Portugal could be saved if it were not for the chaos surrounding Cyprus and the fallout that is likely to land in the form of a run of account closures and withdrawals from banks in countries where stability is questioned.
This problem will be resolved in time, but investors should be wary of keeping all of their savings in euros as it is likely that euro dollar parity will be reached before the crisis is resolved. Analysts at ChanPark believe that the debt crisis in Cyprus is the tip of an iceberg that will trickle down to a larger problem including many other Eurozone countries. “By the time this is all resolved and investor confidence is restored it is likely that the euro, US dollar, Australian dollar, and Canadian dollar will all be near parity.” Michael Webber – ChanPark International, Senior Wealth Manager.
It is clear to all that some sort of plan needs to be agreed upon and it is highly unlikely that an agreement won’t be reached; Cyprus and the Eurozone depend on it. The question that remains is: How will the fallout from this catastrophe affect the Eurozone and the stability of banks in other nations? The answer remains to be seen, but fixing Cyprus is just a bandage on a larger system that is massively hemorrhaging.