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
A C Grayling
A. C. Grayling is an English philosopher and founder of independent undergraduate college, New College of the Humanities. He is the author of several books including The Refutation of Scepticism (1985), The Meaning of Things (2001) and The Good Book (2011).
Tuesday 26 March 2013
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.
Missing Malaysia Airlines Flight MH370: Wreckage could be found within a week as search reaches 'very critical juncture', says minister
The man they forgot to lock up: Mike Anderson was sentenced to 13 years in jail, but the police never came
Unbeliebable: The White House offer 'no comment' to anti-Justin Bieber petition
Loch Ness Monster found on Apple Maps?
South Korea ferry disaster: Families watch as remains of Sewol victims returned to shore
The food poverty scandal that shames Britain: Nearly 1m people rely on handouts to eat – and benefit reforms may be to blame
Scottish independence: It is the English who should be on their knees, begging the Scots to vote ‘No’
'Sinful': Video of British Muslims dancing to Pharrell Williams's hit Happy comes under attack
Nigel Farage: I’m taking on the status quo, and the Establishment’s fighting back
An open letter to Nigel Farage: you may smile, but I am not seduced
Abdullah Deghayes: My son was the martyr of a just cause, says father of British teenager killed in Syria conflict
- 1 Easter egg hunt horror as mother finds dead body under deck of house
- 2 A bottle of wine a day is not bad for you and abstaining is worse than drinking, scientist claims
- 3 Unbeliebable: The White House offer 'no comment' to anti-Justin Bieber petition
- 4 Loch Ness Monster found on Apple Maps?
- 5 Criminals ‘using unmanned drones and infrared cameras to find illegal cannabis farms’ – and then steal from the growers
£130 - £140 per day: Randstad Education Ilford: Secondary Geography Teacher Lo...
£55 - £70 per day: Randstad Education Cheshire: Are you a dynamic and energeti...
Negotiable: Randstad Education Group: SEN TAs, LSAs and Support Workers needed...
£50000 - £60000 per annum: Pro-Recruitment Group: The Sheffield office of this...