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Global Stock Markets Drop on Cyprus Concerns Cyprus Delays Vote on Bailout Plan
(about 2 hours later)
PARIS — Global stock markets faltered on Monday as investors awaited the outcome of a vote in Cyprus that could help to determine the future of the euro zone. NICOSIA, Cyprus — Cyprus’s Parliament on Monday delayed an emergency vote on a bailout plan for the second time in as many days as President Nicos Anastasiades faced trouble rounding up support among lawmakers.
Parliament was scheduled to vote Monday afternoon in the Cypriot capital, Nicosia, on whether to approve a 10 billion euro, or $13 billion, European Union bailout. A vote was scheduled for Tuesday at 4 p.m. local time, the Parliament announced, although there was the possibility it could be delayed until Friday.
Nicos Anastasiades, the Cypriot president, warned Sunday that a failure to pass the deal could lead to a major shock, including “a complete collapse of the banking sector” and the possibility that the divided island nation would have to leave the euro altogether. As European stock markets faltered and the euro fell against major currencies, the government said it would also keep Cypriot banks shuttered until at least Friday, well beyond a bank holiday that was supposed to end Monday. The move is aimed at staving off a possible bank run.
The main euro zone blue-chip stock index fell nearly 2 percent, mirroring declines earlier in Asia, and Wall Street stocks were expected to open lower.
Mr. Anastasiades warned Sunday that a failure to pass the a 10 billion euro, or $13 billion, deal could lead to a major shock, including “a complete collapse of the banking sector” and the possibility that the divided island nation would have to leave the euro altogether.
The bailout plan, worked out early Saturday in Brussels, brought a sharp backlash among Cypriots over a critical break with recent European tradition: For the first time since the onset of the euro zone sovereign debt crisis and the bailouts of Greece, Portugal and Ireland, ordinary depositors — including those in insured accounts — will being called on to bear part of the cost, 5.8 billion euros, through one-time levies on their savings.The bailout plan, worked out early Saturday in Brussels, brought a sharp backlash among Cypriots over a critical break with recent European tradition: For the first time since the onset of the euro zone sovereign debt crisis and the bailouts of Greece, Portugal and Ireland, ordinary depositors — including those in insured accounts — will being called on to bear part of the cost, 5.8 billion euros, through one-time levies on their savings.
That strikes many people as deeply unfair, and has raised fears that depositors in Spain or Italy, two countries that have struggled economically of late, might also take fright.That strikes many people as deeply unfair, and has raised fears that depositors in Spain or Italy, two countries that have struggled economically of late, might also take fright.
Jeroen Dijsselbloem, the president of the group of euro area ministers, declined Saturday to rule out taxes on depositors in countries beyond Cyprus, although he said such a measure was not currently being considered.Jeroen Dijsselbloem, the president of the group of euro area ministers, declined Saturday to rule out taxes on depositors in countries beyond Cyprus, although he said such a measure was not currently being considered.
Mr. Anastasiades’s cabinet was meeting Monday amid fears that the European Union might have reached its “Lehman Brothers moment,” a reference to the chaos that followed the decision of the U.S. government to allow the investment bank Lehman Brothers to fail in September 2008.
Cypriot political leaders were discussing revisions to the deal announced Saturday to make the levy more palatable to citizens and get the bailout through Parliament, including reducing the percentage to be paid by those with deposits of less than 100,000 euros.Cypriot political leaders were discussing revisions to the deal announced Saturday to make the levy more palatable to citizens and get the bailout through Parliament, including reducing the percentage to be paid by those with deposits of less than 100,000 euros.
Still, many analysts and economists insisted that Cyprus’s problems were unique, and said they expected the fallout from the trauma there to be limited. They noted that Cyprus’s banks, whose assets dwarf the island’s gross domestic product, are holding tens of billions of euros in Russian deposits of dubious provenance. That, in turn, is raising fears in other euro zone nations that non-Cypriot taxpayers would be bailing out wealthy Russians, something that has not been a concern with other euro nations in distress. In addition to E.U. support, Russia’s help is also essential, because of the large amount of Russian funds held by Cypriot banks. But President Vladimir Putin on Monday described the bailout plan as “unfair, unprofessional and dangerous,” Reuters quoted a Kremlin Spokesman, Dmitry Peskov, as saying.
In Berlin, the German finance minister, Wolfgang Schäuble, sought to deflect criticism for the damage to depositors, saying the “levy on deposits below 100,000 euros was not the creation of the German government,” according to Reuters. “If one reached another solution, we would not have the slightest problem.”
Many analysts and economists insisted that Cyprus’s problems were unique, and said they expected the fallout from the trauma there to be limited. They noted that Cyprus’s banks, whose assets dwarf the island’s gross domestic product, are holding tens of billions of euros in Russian deposits of dubious provenance. That, in turn, is raising fears in other euro zone nations that non-Cypriot taxpayers would be bailing out wealthy Russians, something that has not been a concern with other euro nations in distress.
And analysts at Société Générale noted that the Cypriot banks had issued debt equivalent to just 1.3 percent of their total liabilities, meaning that if the European Union insists on so-called bail-in by creditors, depositors were the only ones able to pick up the tab.And analysts at Société Générale noted that the Cypriot banks had issued debt equivalent to just 1.3 percent of their total liabilities, meaning that if the European Union insists on so-called bail-in by creditors, depositors were the only ones able to pick up the tab.
Goldman Sachs analysts said that, assuming Parliament approved a deal, “the direct ramifications from Cyprus will likely be contained,” thanks partly to the European Central Bank’s commitment to back up euro zone banks.Goldman Sachs analysts said that, assuming Parliament approved a deal, “the direct ramifications from Cyprus will likely be contained,” thanks partly to the European Central Bank’s commitment to back up euro zone banks.
“Unfortunately, the issue is not as simple as whether the Cypriot government supports the bailout,” analysts at DBS in Singapore wrote in a research note on Monday.“Unfortunately, the issue is not as simple as whether the Cypriot government supports the bailout,” analysts at DBS in Singapore wrote in a research note on Monday.
The markets, they added, are worried that the plans to force ordinary depositors to share the cost of the bailout “may send the wrong message on the safety of bank deposits in other E.U. nations, just when light appeared to be emerging at the end of the long tunnel for the peripheral nations.”The markets, they added, are worried that the plans to force ordinary depositors to share the cost of the bailout “may send the wrong message on the safety of bank deposits in other E.U. nations, just when light appeared to be emerging at the end of the long tunnel for the peripheral nations.”
More broadly, the analysts at Société Générale noted that the approach adopted over the Cyprus bailout also highlighted that there is still “no standard approach of tackling the euro debt crisis.”More broadly, the analysts at Société Générale noted that the approach adopted over the Cyprus bailout also highlighted that there is still “no standard approach of tackling the euro debt crisis.”
In early Paris trading, the Euro Stoxx 50, a benchmark for euro zone blue chips, was down 1.9 percent. In London, the FTSE-100 index dropped 1.0 percent. Yields on Spanish and Italian government bonds — which move in the opposite direction of the prices — rose, as investors sought the perceived safety of German and other bonds. In afternoon trading in Europe, the Euro Stoxx 50, a benchmark for euro zone blue chips, was down 1.9 percent. In London, the FTSE-100 index dropped 1.0 percent. Yields on Spanish and Italian government bonds — which move in the opposite direction of the prices — rose, as investors sought the perceived safety of German and other bonds.
Trading in U.S. equity index futures pointed to expectations that stocks would fall at the opening bellTrading in U.S. equity index futures pointed to expectations that stocks would fall at the opening bell
The euro fell sharply against the dollar, dropping to $1.2940, from a close of $1.3074 on Friday. The decline took the currency to its weakest level since late last year. Cyprus’s markets were closed for a bank holiday, and officials have suggested they might extend the holiday for a second day Tuesday. The euro fell against the dollar, dropping to $1.2956 from a close of $1.3074 on Friday. The decline took the currency to its weakest level since late last year. Cyprus’s markets were closed for a bank holiday, and officials have suggested they might extend the holiday for a second day Tuesday.
In Asian trading, the Nikkei 225-stock average tumbled 2.7 percent in Tokyo, while the Sydney benchmark Australia, the S.&P./ASX 200 index, closed 2.1 percent lower. The Hang Seng index in Hong Kong fell 2 percent.In Asian trading, the Nikkei 225-stock average tumbled 2.7 percent in Tokyo, while the Sydney benchmark Australia, the S.&P./ASX 200 index, closed 2.1 percent lower. The Hang Seng index in Hong Kong fell 2 percent.
Bettina Wassener reported from Hong Kong. David Jolly reported from Paris. Bettina Wassener in Hong Kong and Andreas Riris in Nicosia contributed reporting.