3 Reasons Cyprus Isn't About Cyprus

Nobody saw this coming. How many investors could find Cyprus on a map? Did anybody know it’s an island? Hawaii is four times the size of Cyprus and its population is slightly smaller than South Dakota—the 47^th largest state. California has about 48 times the population of Cyprus.

If the country is so small, why is it the subject of the international media attention and untold numbers of Google GOOG searches?

It might not be as much about Cyprus. Here’s why:

Here Comes the Eurozone Again

Investors are highly skilled at adopting the “no news is good news” mentality. If they don’t hear anything, all must be good. Remember the days when a eurozone official saying, “We talked about money today,” was enough to send the markets plunging? The market has rallied for many reasons.  One of them is a lack of eurozone news.

Cyprus is a reminder that all is not well in the eurozone. It sends the message to investors that at any time, they could be blindsided by news that will send markets back to the days of a constant stream of European market headlines that many investors don’t understand.

Germany is Calling the Shots

Business Insider laid out some great points regarding Germany Monday morning. Among them, the fact that Germany has had about all it can take of the eurozone drama. They don’t want their money going to other countries when they have their own problems, and with Merkel’s election coming up, the EU doesn’t have any more favors to call in.

This is an International Banking Nightmare!

“Dear Customer: Thank you for banking with us. In light of recent events, we’re forced to wage a ‘tax’ on all deposits. For those with balances above €100,000, 9.9 percent will be levied. For those below €100,000, 6.75 percent. We apologize but this is necessary for our country to receive an EU bailout.”

This will almost certainly rock the confidence that customers all over Europe and the world have in their country’s banks. Put yourself in the place of the person who received that email over the weekend. Would you have any confidence in your nation’s banks going forward?

In morning media coverage, CNBC points out that this is below the deposit insurance threshold and that senior bondholders were skipped. Although this may be largely about the Russian money hiding in these banks, the country’s citizens are collateral damage.

Will this cause a run on banks, especially EU banks? If this is the new precedent, will any talk of a nation in trouble cause a run on that nation’s banks?

In Dennis Gartman's Monday letter, he said, "The very nature of banking has been shaken to its roots."