Markets drops on fear Cyprus deal is new blueprint
Financial markets were enjoying a modest relief rally in the wake of Cyprus’s last-minute bailout Monday, but the gains gave way to worries that future aid agreements will force depositors to participate.
The euro tumbled, European equities were dragged down by banking stocks and Wall Street turned lower after Jeroen Dijsselbloem, the Dutch finance minister and chairman of the euro-zone finance ministers, indicated in remarks to Reuters and the Financial Times that, as in the Cyprus deal, levies on certain bank deposits for other troubled countries to secure financial aid could be imposed.
Dijsselbloem later tried clarify his comments, saying in a statement that “macroeconomic adjustment programs are tailor-made to the situation of the country concerned and no models or templates are used.”
But investors remained spooked that the depositor “bail-in” seen in Cyprus may not be a one-time event.
Cyprus was granted a last-minute bailout from international lenders early Monday after agreeing to restructure and shrink its banking sector, averting bankruptcy. Uninsured deposits — accounts with more than 100,000 euros — could face total losses of €4.2 billion as part of the restructuring.
“Concerns of a bank run are warranted in my opinion, and the spillover to sentiment in other European countries is inevitable,” said Christopher Vecchio, analyst at DailyFX.
The deal struck by Cyprus with the European Central Bank, the European Commission and the International Monetary Fund — collectively known as the troika — cleared the main hurdle to securing 10 billion euros ($13 billion) in crucial financing.
“Overall, this last minute deal avoids the worst-case scenario of a potential bank and sovereign default and Cyprus exiting the euro,” said economists at Barclays in a note.
A Eurogroup statement issued following the deal said “the Cypriot authorities have reaffirmed their commitment to step up efforts in the areas of fiscal consolidation, structural reforms and privatization.”
thanks to rev17 for the link..
“indicated in remarks to Reuters and the Financial Times that, as in the Cyprus deal, levies on certain bank deposits for other troubled countries to secure financial aid could be imposed.”
then he backtracks as he realises what he has said..but the genie is out the bottle..we know what you plan to do now..