March.25 - European shares erased gains made after a bailout deal for Cyprus as the focus quickly turned elswhere. But market analysts say some investors' trust in euro zone policy makers has been lost. Sonia Legg reports.
It was a short-lived relief rally for European shares and the euro following news of a bailout deal for Cyprus. The immediate threat of financial meltdown may have been averted but it was quickly replaced by worries about an economic slowdown and political uncertainties elsewhere. Gains were erased on the FTSEurofirst 300 and the euro zone banking share index. But Francois Chaulet from Paris-based Montsegur Finance said the initial rally suggested confidence over Cyprus. (SOUNDBITE) (French) MONTSEGUR FINANCE ASSET MANAGER FRANCOIS CHAULET SAYING: "I think the solution that has been found shows that the euro is a zone that can remain solid. Countries just don't leave it - fellow members can come to its help to find solutions, even if talks finish late at night solutions are found." But that view isn't shared by all investors. Mike Ingram from BGC Partners in the UK says making bank depositors pay will have significant implications. SOUNDBITE) (ENGLISH): MIKE INGRAM, BGC PARTNERS, SAYING: "The plan which was initially mooted was completely unfair and although technically legal rather arbitrarily hit depositors and the final solution we have, well I think there is a big question mark over that? Who's going to trust these deposit guarantees elsewhere in the future?" A fall in German 10 year Bunds was also reversed. Tobias Blathner from Daiwa Capital Markets says that was because bigger fish had taken centre stage. (SOUNDBITE) (English): TOBIAS BLATHNER, DAIWA CAPITAL MARKETS, SAYING: "The markets will be quickly focussing again on Italy where the parties are still trying to form a government and that is arguably much more important from a euro wide scenario than what has happened in Cyprus." But there is still one significant worry for investors over Cyprus. The decision to hit bank deposits could make savers in other debt-strained countries nervous. And some banks - in Spain in particular - don't have sufficient funds to cope with any significant cash withdrawal.