Cyprus banks shut until Thursday on Bailout Failure – Rethink Savings Tax

A woman unsuccessfully attempts to withdraw from a Cypriot bank ATM in Greece on Sunday. Bank of Cyprus in Athens. By 2011, Cypriot banks had made loans worth more than eight times the country’s national output. Photograph: Katia Christodoulou / EPA

Two days after the European Union revealed a €10 billion rescue for Cyprus, the tiny island nation said its banks would not reopen at least until Thursday to give it more time to win the backing of parliament for a controversial tax on deposits. The unprecedented tax on bank deposits led to a run on cash machines in Cyprus over the weekend. It also spooked investors, who feared that other weak eurozone states could eventually be forced down the same path, despite EU statements to the contrary.

Shares across the region fell Monday, and banks were hit particularly hard. The prices of government bonds across southern Europe also fell, pushing up yields. There were no signs of bank runs in other European countries, including Italy and Spain.

“The contagion from Cyprus is fairly limited but there is a tail risk that this measure could backfire,” wrote Berenberg Bank analysts in a note.

As part of the plan to rescue Cyprus’ outsized banking sector and head off national default, the EU said deposits of more than €100,000 would be subject to a one-off levy of 9.9%.

Smaller depositors would be subject to a levy of 6.75%. It was the first time that the EU has insisted on such terms for bank depositors as part of a bailout.

The EU’s bailouts of other nations, such as Greece, have been accompanied by strict budget restrictions and led to losses for bond holders and shareholders.

Source: Money.CNN.com

Cyprus’s president tries to calm fears over EU bailout

Nicos Anastasiades, president of Cyprus, says he had to accept a levy on bank deposits to save the island from bankruptcy. Speaking about the euro bailout plan in a televised address to the nation, he says Cyprus faces ‘a state of emergency’, and an exit from the euro would been worse. Anastasiades was elected last month on a promise to tackle the country’s debt crisis

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