Cyprus parliament postpones vote on bailout
Putin criticises proposed Cyprus levy as 'unfair, unprofessional and dangerous'
London's FTSE 100, Frankfurt's DAX and Paris's CAC 40 all fell between 1.5 and 2 per cent on opening.
Moscow's MICEX was down 2.4 per cent. Brussels has emphasised that the measure is a one-off for a country that accounts for just 0.2 per cent of European output.
The worst fear is that savers in other, larger European countries could become nervous and start withdrawing funds, although there was no immediate sign of that early today.
US economist Paul Krugman wrote in The New York Times: “It's as if the Europeans are holding up a neon sign, written in Greek and Italian, saying 'Time to stage a run on your banks!'”
Today is a bank holiday in Cyprus, giving the government until tomorrow to approve the measures before banks open.
The bailout is needed mainly to recapitalise banks. Approval in the fractious 56-member parliament is far from a given: no party has an absolute majority and three parties say outright they will not back the tax.
A vote initially planned for last night was rescheduled to give more time to build a consensus.
Faced with a growing public backlash, Cypriot finance ministry officials began discussions with lenders yesterday to lessen the blow for smaller savers.
A source close to the consultations said authorities were hoping to cut the tax to 3 per cent from 6.7 per cent for deposits under €100,000.
Finance ministers, including Minister for Finance Michael Noonan, reached an agreement on Saturday morning on a long-delayed bailout for Cyprus which includes an unprecedented measureto levy depositors.
The Irish Government welcomed the agreement, describing it as a "positive development for Cyprus, the euro zone as a whole, and Ireland ".
“The Cypriot case is a complex and difficult case and it was a significant achievement to reach an agreement between all parties,” a Department of Finance spokesman said yesterday. “This agreement provides a sustainable solution, which deals with Cyprus's financial system and its funding requirements.”
Cyprus followed Greece, Ireland and Portugal in seeking a bailout last June after its banking sector was heavily exposed to Greek debt. Spain has also requested a €40 billion bailout for its banks.
Cypriot economist Sophocles Markides told The Irish Times the EU's handling of this crisis could “finish off Cyprus as a financial centre”.
He warned the proposals could have negative dynamic repercussions across the euro zone as deposits under €100,000 are, by law, supposed to be guaranteed.
