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20 Mar 2013
Forex Flash: Next headlines on Cyprus to provide a sense of timelines - TDS
FXstreet.com (Barcelona) - After the Cypriot Parliament voted no to a bank levy, in view of Richard Kelly, Head of European Rates and FX Research at TD Securities, "their first alternative is to try to negotiate Russian support on Wednesday to see if they can get a better offer or negotiating power with the Eurogroup, however, Cyprus has little leverage with either."
Richard adds: "The fact that spiting a deposit levy meant to raise €5.8bn would put Cyprus on the hook for €30bn instead is the math that makes a hard bank default difficult to fathom, but that is the downside risk that the no vote has now opened up for Cyprus. Wednesday headlines should provide a sense of what timeline Cyprus is working on—days or weeks? If the former, the ECB should be willing to roll ELA assistance, but a lack of perceived urgency could well test ECB patience."
Mr. Kelly believes that at this stage, "ECB officials may be unwilling to pull ELA (emergency liquidity assistance) support via a 2/3 vote this week if there is a prospect of a Cypriot decision in a matter of days, but the ECB will not provide weeks to Cyprus and with LTROs and the OMT at their disposal, would be willing to withdraw support now that Parliament has voted no."
"Headlines on the Russia visit Wednesday become key for determining the sort of timeline we are talking about" Richard concludes.
Richard adds: "The fact that spiting a deposit levy meant to raise €5.8bn would put Cyprus on the hook for €30bn instead is the math that makes a hard bank default difficult to fathom, but that is the downside risk that the no vote has now opened up for Cyprus. Wednesday headlines should provide a sense of what timeline Cyprus is working on—days or weeks? If the former, the ECB should be willing to roll ELA assistance, but a lack of perceived urgency could well test ECB patience."
Mr. Kelly believes that at this stage, "ECB officials may be unwilling to pull ELA (emergency liquidity assistance) support via a 2/3 vote this week if there is a prospect of a Cypriot decision in a matter of days, but the ECB will not provide weeks to Cyprus and with LTROs and the OMT at their disposal, would be willing to withdraw support now that Parliament has voted no."
"Headlines on the Russia visit Wednesday become key for determining the sort of timeline we are talking about" Richard concludes.