Stocks around the world fell sharply Monday as investors fretted over a weekend plan to tax depositors in Cypriot banks as part of a bailout of the Mediterranean island nation.
"In the medium term the decision taken regarding the loss on bank deposits could have major ramifications for the eurozone if the European debt crisis re-escalates," said Gary Jenkins, managing director of Swordfish Research. "What I find most surprising is that they are prepared to take such a major gamble to save such a small amount of money."
Europe braced for renewed turmoil as outrage in Cyprus over an unprecedented levy on bank deposits threatened to derail the nation’s bailout. European shares and the euro tumbled.
...the raid on bank accounts risks triggering new convulsions in the financial crisis that began in 2009 in Greece. Moody’s Investors Service said that the move is a significant step toward limiting support for bank creditors across Europe and shows that policy makers will risk financial- market disruptions to avoid sovereign defaults.
Europe’s surprising decision early Saturday to force bank depositors in Cyprus to share in the cost of the latest euro zone bailout set off increasing outrage and turmoil in Cyprus on Sunday and fueled fears that the trouble will spread to countries like Spain and Italy.
Facing eroding support, the new president, Nicos Anastasiades, asked Parliament to postpone until Monday an emergency vote on a measure to approve the bailout terms, amid doubt that it would pass. The euro fell sharply against major currencies ahead of the action, as investors around the world absorbed the implications of Europe’s move.
The government extended a bank holiday it had imposed over the weekend, meaning banks will not open Tuesday as planned. There was talk that they might not open Wednesday, either.
In response, the European Central Bank applied more pressure to have the deal approved, sending two representatives to Cyprus on Saturday night to assure Cypriot banks that the central bank was “here for them — as long as the bill goes through Sunday or Monday morning before financial markets in Europe open,” said Aliki Stylianou, a press officer for the central bank of Cyprus.
Scenes of Cypriots lining up at cash machines raised the specter of capital flight elsewhere and threatened to disrupt a market calm since the ECB’s pledge in September to backstop troubled nations’ debt. With no government in Italy, Spain in the throes of a political scandal and Greece struggling to meet the terms of its own bailout, more turmoil could hamper efforts to end the crisis.
The Euro Stoxx 50 Index fell 1.9 percent and the euro slid as much as 1.9 percent; the currency was trading at $1.2960, down 1 percent at 11:45 a.m. in Frankfurt.
Borrowing costs in other debt-strapped nations rose. Italian 10-year bond yields climbed 9 basis points to 4.69 percent. The rate on similar-maturity Spanish yields jumped 10 basis points to 5.02 percent. Germany led gains among higher- rated nations’ securities.
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