Cyprus in Crisis: "One More Signal of a Deflationary Contagion on the March"

The proposed levy on personal bank accounts in Cyprus reminded the world of the continent's financial instability. The European Union said the levy is a precondition for a Cypriot financial bailout.

Bank depositors in Cyprus are livid and worried. They wanted to withdraw their money from their bank accounts, but the banks were ordered to close.

Cyprus lawmakers did vote against the levy, which "set the country on a collision course with its European partners." (Wall Street Journal, March 19)

The March 18, Elliott Wave Financial Forecast Short Term noted that the financial upheaval in Cyprus "is yet one more signal of a deflationary contagion that is on the march," and that the significance of Cyprus should not be dismissed because it's a small nation.

Financial television argued all morning that Cypriot trouble was small and contained relative to European economies. But the same argument was made about Lehman's troubles in 2008. Besides, it misses the broader point. Cyprus' financial troubles are but one in a long line of problems that are feeding a deflationary spiral.

The Elliott Wave Financial Forecast Short Term Update, March 18

A March 20, NBC report provides an update on the financial crisis in Cyprus. Here's an excerpt:

Cypriot leaders held crisis talks on [March 20] to avert financial meltdown after rejecting the terms of a controversial European Union bailout, turning instead to Russia for help.

Banks on the Mediterranean island may never reopen, Germany warned after lawmakers late Tuesday turned down a $12.9 billion deal that would have seen Cypriots lose up to 10 per cent of their bank deposits....

Banks were ordered to remain closed after finance officials predicted a run on savings and a huge outflow of capital if they were to reopen.