Cyprus bailout spooks markets as banks told to stay closed until Thursday

Investors fear raids on bank accounts in other countries after Cypriot rescue deal is hailed by eurozone finance chief

Financial markets dropped yesterday after the influential head of the eurozone's finance ministers appeared to suggest that the Cypriot bailout deal was a model for future European rescues.

Stock markets had opened strongly following news that a bailout for Cyprus – which included a levy on savers with assets over €100,000 – had been agreed. But the comments from Jeroen Dijsselbloem saw the euro fall more than a cent against the dollar and shares in a number of banks slump as traders rushed to sell their stakes in institutions in the eurozone's most indebted economies.

In France, Societé Générale shares fell 5.7 per cent to €25.82, while Italy's UniCredit dropped 5.3 per cent to €3.39. Spain's Bankia, which has recently been through a recapitalisation programme of its own, fell 37.5 per cent to €0.15. "What we've done last night is what I call pushing back the risks," Mr Dijsselbloem told Reuters. "If there is a risk in a bank, our first question should be 'OK, what are you in the bank going to do about that? What can you do to recapitalise yourself?'

"If the bank can't do it then we'll talk to the shareholders and the bondholders, we'll ask them to contribute in recapitalising the bank, and if necessary the uninsured deposit-holders."

Mr Dijsselbloem's spokeswoman moved swiftly to "clarify" her boss's comments, claiming that the issue of Cyprus being used as a template had been taken out of context. Later, Mr Dijsselbloem himself issued a statement insisting that Cyprus was a "specific" case faced with "exceptional challenges", though by that stage the damage had been done.

The day began optimistically after more than 12 hours of talks in Brussels between Cyprus's President Nicos Anastasiades, leaders of the Troika (International Monetary Fund, the European Central Bank and the European Union) and eurozone finance ministers ended in the early hours of yesterday morning with a deal that will see Cyprus Popular Bank (also known as Laiki), the country's second largest, shut down. Its toxic assets – and any deposits above €100,000, below which funds are insured by the European Union – will be transferred into a Northern Rock-style bad bank.

The remainder of its funds will be merged into the Bank of Cyprus, whose customers with assets above €100,000 will have their accounts frozen and be forced to pay a tax of anywhere between 30 and 40 per cent of their savings. The funds generated from the tax will be converted into shares in the bank which, added to money from a series of privatisations and tax increases, will raise the €5.8bn required by Cyprus to trigger a further €10bn bailout from Europe.

The talks were at times fractious, with Mr Anastasiades reportedly asking IMF chief Christine Lagarde at one point whether she was looking to remove him from his job. But a deal was agreed just hours before the ECB's deadline that would have seen emergency funding for the banks withdrawn. Without the money, both would have gone bust and the island would have been forced out of the euro.

German Chancellor Angela Merkel praised the deal, saying: "The result that was found is right." She said the structure "makes those who helped cause these undesirable developments play their part", a reference to the wealthy Russian investors at whom the levy on deposits is targeted.

But not everyone was so welcoming. The outcome of the talks was described as "painful" by President Anastasiades last night, who also expressed his disappointment at the attitude of Cyprus's European partners. The chairman of the Cypriot parliament's finance committee, Nicholas Papadopolous, told the BBC earlier in the day: "We are heading for a deep recession. They wanted to send a message that the Cypriot economy ought to be destroyed, and they've succeeded." Analysts from SocGen predicted Cyprus could lose 20 per cent of its GDP over four years.

In Nicosia, the deal was met with despair. Giannis, a 78-year-old businessman, wiped the tears from his eyes as he wondered how he'd repay the loans he took out to boost his business. "I've survived many storms in my life, but this one will be the toughest," he said.

The island's banks – with the exception of Laiki and Bank of Cyprus – were due to reopen today but last night the Central Bank said they would remain closed until Thursday. Limits have been set on the amount account holders can withdraw, and "temporary" capital controls will be imposed to prevent a bank run.

The deal will not need approval by Cyprus's parliament as it is classified as bank restructuring, not a tax, but several eurozone states, including Germany, still need to vote it through.

News
Susan Sarandon described David Bowie as
peopleSusan Sarandon reveals more on her David Bowie romance
Sport
Arsenal supporters gather for a recent ‘fan party’ in New Jersey
football
News
i100
Sport
sportDidier Drogba returns to Chelsea on one-year deal
PROMOTED VIDEO
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Arts and Entertainment
The Secret Cinema performance of Back to the Future has been cancelled again
film
Life and Style
Balmain's autumn/winter 2014 campaign, shot by Mario Sorrenti and featuring Binx Walton, Cara Delevingne, Jourdan Dunn, Ysaunny Brito, Issa Lish and Kayla Scott
fashionHow Olivier Rousteing is revitalising the house of Balmain
News
i100
Arts and Entertainment
Christian Grey cradles Ana in the Fifty Shades of Grey film
filmFifty Shades of Grey trailer provokes moral outrage in US
News
people
News
BBC broadcaster and presenter Evan Davis, who will be taking over from Jeremy Paxman on Newsnight
peopleForget Paxman - what will Evan Davis be like on Newsnight?
Life and Style
fashionCustomer complained about the visibly protruding ribs
News
newsComedy club forced to apologise as maggots eating a dead pigeon fall out of air-conditioning
Arts and Entertainment
Jo Brand says she's mellowed a lot
tvJo Brand says shows encourage people to laugh at the vulnerable
Life and Style
People may feel that they're procrastinating by watching TV in the evening
life
News
Tovey says of homeless charity the Pillion Trust : 'If it weren't for them and the park attendant I wouldn't be here today.'
people
Sport
Rhys Williams
commonwealth games
Independent
Travel Shop
the manor
Up to 70% off luxury travel
on city breaks Find out more
santorini
Up to 70% off luxury travel
on chic beach resorts Find out more
sardina foodie
Up to 70% off luxury travel
on country retreats Find out more
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Employment Solicitor

Highly Competitive Salary: Austen Lloyd: MANCHESTER - Senior Employment Solici...

Senior Risk Manager - Banking - London - £650

£600 - £650 per day: Orgtel: Conduct Risk Liaison Manager - Banking - London -...

Commercial Litigation Associate

Highly Attractive Package: Austen Lloyd: CITY - COMMERCIAL LITIGATION - GLOBAL...

Systems Manager - Dynamics AX

£65000 - £75000 per annum + Benefits: Progressive Recruitment: The client is a...

Day In a Page

Evan Davis: The BBC’s wolf in sheep’s clothing to take over at Newsnight

The BBC’s wolf in sheep’s clothing

What will Evan Davis be like on Newsnight?
Finding the names for America’s shame: What happens to the immigrants crossing the US-Mexico border without documents who never make it past the Arizona desert?

Finding the names for America’s shame

The immigrants crossing the US-Mexico border without documents who never make it past the Arizona desert
Inside a church for Born Again Christians: Speaking to God in a Manchester multiplex

Inside a church for Born Again Christians

As Britain's Anglican church struggles to establish its modern identity, one branch of Christianity is booming
Rihanna, Kim Kardashian and me: How Olivier Rousteing is revitalising the house of Balmain

Olivier Rousteing is revitalising the house of Balmain

Parisian couturier Pierre Balmain made his name dressing the mid-century jet set. Today, Olivier Rousteing – heir to the house Pierre built – is celebrating their 21st-century equivalents. The result? Nothing short of Balmania
Cancer, cardiac arrest, HIV and homelessness - and he's only 39

Incredible survival story of David Tovey

Tovey went from cooking for the Queen to rifling through bins for his supper. His is a startling story of endurance against the odds – and of a social safety net failing at every turn
Backhanders, bribery and abuses of power have soared in China as economy surges

Bribery and abuses of power soar in China

The bribery is fuelled by the surge in China's economy but the rules of corruption are subtle and unspoken, finds Evan Osnos, as he learns the dark arts from a master
Commonwealth Games 2014: Highland terriers stole the show at the opening ceremony

Highland terriers steal the show at opening ceremony

Gillian Orr explores why a dog loved by film stars and presidents is finally having its day
German art world rocked as artists use renowned fat sculpture to distil schnapps

Brewing the fat from artwork angers widow of sculptor

Part of Joseph Beuys' 1982 sculpture 'Fettecke' used to distil schnapps
BBC's The Secret History of Our Streets reveals a fascinating window into Britain's past

BBC takes viewers back down memory lane

The Secret History of Our Streets, which returns with three films looking at Scottish streets, is the inverse of Benefits Street - delivering warmth instead of cynicism
Joe, film review: Nicolas Cage delivers an astonishing performance in low budget drama

Nicolas Cage shines in low-budget drama Joe

Cage plays an ex-con in David Gordon Green's independent drama, which has been adapted from a novel by Larry Brown
How to make your own gourmet ice lollies, granitas, slushy cocktails and frozen yoghurt

Make your own ice lollies and frozen yoghurt

Think outside the cool box for this summer's tempting frozen treats
Ford Fiesta is UK's most popular car of all-time, with sales topping 4.1 million since 1976

Fiesta is UK's most popular car of all-time

Sales have topped 4.1 million since 1976. To celebrate this milestone, four Independent writers recall their Fiestas with pride
10 best reed diffusers

Heaven scent: 10 best reed diffusers

Keep your rooms smelling summery and fresh with one of these subtle but distinctive home fragrances that’ll last you months
Commonwealth Games 2014: Female boxers set to compete for first time

Female boxers set to compete at Commonwealth Games for first time

There’s no favourites and with no headguards anything could happen
Five things we’ve learned so far about Manchester United under Louis van Gaal

Five things we’ve learned so far about United under Van Gaal

It’s impossible to avoid the impression that the Dutch manager is playing to the gallery a little