Recent events in Cyprus1 have understandably caused consternation in the markets and we expect our clients to have a number of questions following the announcement of the EU bailout agreement on Monday 25 March 2013 including but not limited to:
- What will be the impact of proposed capital and exchange controls?
- Can capital and exchange controls in Cyprus be challenged?
- What might be the risk to assets and property located in Cyprus?
- Will recent events in Cyprus give rise to any contractual “exits” (e.g events of default or force majeure events)?
The answers to some of these questions (e.g. exchange and capital control risk) will depend on the detail of the legislation implemented when known but to the extent we have some information we are updating our Eurozone risk matrix to identify what we see as some of the legal issues facing Cyprus.
Our Eurozone risk matrix was originally structured around the scenario of an exit by a member state with a weaker economy from the Eurozone. Cyprus by contrast is a member state which has remained in the Eurozone but nonetheless faces some issues which are not dissimilar to an exiting member state in terms of investor confidence as a result of the terms of the EU bailout agreed. Our risk matrix is being developed and adapted to take account of these different scenarios evolving as a result of problems in the Eurozone.