News Column

Euro Tumbles in Wake of Cyprus Bailout Deal

March 18, 2013

The euro hit a three-month low against the US dollar on Monday, as financial markets reacted to the inclusion of a one-off tax on bank deposits in the bailout deal for Cyprus.

The European currency was trading at 1.2952 in the late morning, down almost 1 per cent. The eurozone benchmark Eurostoxx 50 share index, meanwhile, was down 1.6 per cent at 2,682 points.

Cyprus' international creditors on Saturday said the tax ranging from 6.75 per cent to 9 per cent would be applied to deposits as part of the 10-billion-euro (13-billion-dollar) bailout agreed last week.

ING analyst Carsten Brzeski predicted that the measure will constitute "a further blow to the restored calm" in the eurozone, following inconclusive elections in Italy.

"The bail-in of bank depositors has the potential to create new turmoil and possible bank runs in other peripheral countries if people start to fear similar treatment in the future," he noted.

"This operation creates the impression that secured deposits ... are in fact not secure within the Economic and Monetary Union."

But other analysts were less pessimistic.

"We consider the likelihood of a bank run in other periphery countries to be limited, including in Greece," experts at Barclays said. "Cyprus is likely to be a unique case for bailing in depositors due to the very special position of its banking sector."

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Source: Copyright 2013 dpa Deutsche Presse-Agentur GmbH

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