Temporary relief for Cyprus, eyes now on Italy

The Cypriot financial crisis is solved for now, but attention will now turn to the euro zone's other flashpoints, says Olivetree Securities' Simon Maughan. Italy is next on the list.

SHOWS:

1. SIMON MAUGHAN, GLOBAL FINANCIAL STRATEGIST AT OLIVETREE SECURITIES, SAYING:

'Cyprus has received temporary relief and how temporary that proves to be will depend on a couple of things - first of all, how effective capital controls are in keeping money within Cyprus; and secondly, whether the Cypriot economy can actually function with capital controls. But for now, it's happy days and bank shares are on the way up. 
(QUESTION: If there is a risk of contagion to the European banking system, where is next in the firing line?)
Well Cyprus of course, although there's a temporary resolution there, solves nothing for the rest of Europe. The biggest problem is there's an absence of growth, there's ongoing austerity and there's no real prospect of growth picking up. The immediate attention now focused to Italy which is still functioning or not functioning depending on how you want to look at it without a government and whether we can get any kind of answers there. But we still have a very large amount of private credit to GDP in a number of European nations significantly more so than in the US. And that kind of issue is nowhere near resolved. 
(QUESTION: Moody's this morning issued a note on the French banking system, kept them on negative watch and said big risk from recession and banks' reliance on wholesale funding. How big a problem is France and when will it be a problem for us?)
Well France is the mother lode of all problems for the EU because even if there are ways and means in place to provide liquidity to Spain and Italy and that is highly doubtful, there is absolutely no way that the EU would be able to deal with the French banking system. But the dominos are lined up and they're named in pretty reasonable and well-known order. Spain, Italy and then France. So we've probably got to deal with another crisis in Spain and another pre-crisis in Italy before we deal with the big problem which is France.'


http://www.4-traders.com/news/Temporary-relief-for-Cyprus-eyes-now-on-Italy-Analyst--16580155/