The Euro Performs More Strongly Thanks to the Hope of a Deal for Cyprus

Posted by Allison on 3 April 2013, 17:38

If any currency has gone through the wringer a bit of late, it has to be the Euro. The Eurozone has struggled to keep going in recent times, with various countries getting into problems with debt and seeking assistance to bail them out.

Unless you have been studious enough to avoid the news in the past week or so, you will undoubtedly be aware of the situation in Cyprus. No financial lifeline will be given to Cyprus unless and until it can raise 5.8 billion Euros off its own back to guarantee a further 10 billion Euros of help from the Eurozone. At the time of writing, on 23rd March, Cyprus had just two more days to work out how to raise the required funds.

The consequences of not doing this are profound. Quite simply, it amounts to this: Cyprus is in grave debt. If they cannot find some way of raising the 5.8 billion Euros required, the European Central Bank will no longer provide funds for the banks in Cyprus. What would happen after this is anyone’s guess, but an exit from the Euro (something that was said to be ‘impossible’ at the start of the Euro project) would be virtually a certainty.

It seemed on Friday 2nd March that the leaders in Cyprus were edging closer to a deal that would see them stay in the Eurozone and receive the money they desperately needed to survive. Of course there is no telling whether this will come to pass until a deal is agreed, but at least it looks slightly more heartening than it did a few short days ago.

The Euro has been through a rough week too as far as the currency markets are concerned. The earlier suggestion to put a tax on Cypriot bank deposits was roundly rejected, leading to a dip in the Euro that saw it reach a lower level than it had done for four months. However by the end of the week it was looking healthier again, giving the Eurozone something at least to be happy about.