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Eurozone Crisis

by International Commercial Investment on April 4, 2013

Portugal market jitters over instability

Lisbon stock market falls sharply as challenges to the government raise fears the country’s €78bn bailout programme could be derailed – certainly after the Cypriot banking situation in the past few weeks.

Portuguese anti-austerity sentiment fuelled by expected shrinkage of economy by 2.3% in 2013 and unemployment predicted to soar to 19%.

However the European Commission says government has been making ‘remarkable efforts’ to comply with the programme but missed targets due to broader regional downturn

Therefore with recession into its third year and Lisbon now set for an extension on deficit targets, anger is growing at tightening austerity measures

Cyprus Update

Working with European officials and the International Monetary Fund, Cyprus briefly re-opened its banks last week after imposing a large levy on uninsured deposits and onerous banking restrictions.

From check writing to cash withdrawals, account holders’ access and use of funds are now very heavily constrained.

The immediate goal is to limit deposit outflows, thereby reducing the risk of a bank run that would push the country into depression and potentially threaten the functioning of the euro zone.

History tells us that this approach only works if controls are followed by a re-alignment of economic incentives and by offering the population a genuine hope for recovery and return to normalcy.

Otherwise, what is viewed initially as a “circuit breaker” ends up making the underlying situation worse.

UK

The good news for the UK was that it saw an unprecedented flow of funds into UK banks during the past few weeks – ex pats and indeed overseas residents obviously believing that the UK is a safer bet for investment and savings than the Eurozone member countries.

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