Forex Flash: Problems of banking fragmentation cannot be avoided in Eurozone – UBS

FXstreet.com (Barcelona) - The ECB is constrained by its own mandates on this front and the political calendar is also difficult, but expectations of a shift ahead of implantation can significantly change investors’ perceptions, especially for longer-term asset managers.

“Make no mistake, the episode in Cyprus has brought the fundamental question of asset safety (from expropriation) into focus and needs to be addressed through a comprehensive resolution framework. However, an additional source of concern - reflected through higher risk premiums - was a vicious cycle of austerity and recession.” notes Research Analyst Gareth Berry at UBS.

We cannot escape the problems of banking fragmentation and political risk in the Eurozone, which amplify premiums, but the removal of liquidity trap risks from a shift in policy perspective can reap dividends and the ECB can contribute effectively, as the OMT release has shown.