The owners of capital have advantages which other citizens do not have in expressing their dissatisfaction with arbitrary and unfair actions by government. Capital will leave but of course capital has been exiting southern Europe for many years. As the stability of the Euro shows it has largely been exiting southern Europe for northern Europe. This will now change with very negative impacts for the Euro's value on the international exchanges. With the long arm of Brussels now seen as so powerful is it safe for an Italian citizen to have bank deposits in Germany? It might be but it might not and as there is neither a nominal or likely real return from holding Euro deposits in Germany then why take the risk. The conundrum for the Euro is that one bought it to make money from its dissolution. Owning German Euro deposits and German government debt was likely to produce material profits for any investor in a post Euro world. Now such a bet is incredibly dangerous for a southern European and perhaps even for any foreign investor as sequestration of deposits becomes a tool of fiscal policy. Events in Cyprus are a game changer for the Euro as all capital now realises that, within the Euro system, it is subjected to whatever arbitrary powers government will need to save the system. The decline of the Euro is now particularly important because of its impact on the US, Switzerland and the Emerging Markets.

Eoin Treacy's view I have long argued that the agreement of various politicians and unelected body's to austerity and bailouts could only ever be considered part of any potential solution. These agreements have to be sold to the populations of countries subject to them. It remains an open question just how much more austerity populations are willing at accept. In this case, Cyprus finds itself between a rock and a hard place since the alternative to refusing these punitive measures is outright bankruptcy.

One might wonder why Brussels chose to set such a dangerous precedent for such a paltry amount of money. In the greater scheme of things the €5.6 billion they are seeking to raise from the tax on deposits doesn't seem worth the problems this is going to cause Cypriot banks when they reopen, not to mention the blow to confidence this represents to the broader European banking sector.

This article from Bloomberg centring on the German electoral timetable and the reluctance to be seen to bailout Russian interests offers some additional insights.

The reaction of various financial vehicles gives us an additional clue to what we can expect from this breaking story.

The Greek and Irish stock markets have had perhaps the smallest reactions, not least because their bailouts have already been negotiated and the risk of bank deposit sequestrations is low. Spain and Italy had the largest initial pullbacks not least because they represent the most likely candidates to request aid in future, but even here the declines were pared back significantly by the close of trade The Euro recouped much of its earlier decline.

While most European stock market indices closed well off their lows, the Euro Stoxx Banks Index remained somewhat weaker as it tests the 200-day MA near 110. A clear upward dynamic will be required to check potential for continued lower to lateral ranging.

Gold continues to firm above $1550 and pushed back above $1600 for the first time this month. A sustained move below $1560 would now be required to question potential for additional higher to lateral ranging.

Copper extended its recent pullback while oil recouped its decline.

Here are some conclusions:

The size of the bailout on its own is probably not enough to cause the same reaction as those seen following past Eurozone upheavals not least because the ECB continues to add liquidity to the financial system and can be expected to continue to do so. .

Banks remain the epicentre of risk in the Eurozone. Regardless of the motivation, we can only conclude that Europe is not as safe a home for deposits as it was.

The Eurozone's export sector has benefitted from downward pressure on the currency over the last month and this will flatter global earnings consolidated in Euro.

Following what has been an impressive performance for stock markets over the last few months, the potential for a pause and consolidation has increased despite today's rebound.