Monday, 18 March 2013

Fears Emerge Over Impact of Cyprus Bailout

THE WALL STREET JOURNAL: The Cypriot decision to tax bank depositors EUR5.8 billion as part of a bailout deal with the euro zone has broken a "taboo" and risks a "complete loss of confidence in the financial system."

Over the weekend, it emerged that Cyprus would issue a tax on all Cypriot bank deposits, including savers who thought they were protected by a guarantee of savings below EUR100,000.

Previous sovereign bailouts in the euro zone have required investor participation, but this only involved bondholders. Holders of some Greek government bonds suffered haircuts in its restructuring last year, while Ireland's bailout in 2010 was contingent on holders of debt from nationalised Irish bank bonds suffering big losses.

Senior market participants said that the Cyprus bailout could prove to be dangerous.

Jon Mawby, senior portfolio manager at GLG Partners, said: "In the medium term this could be one of the key policy errors of the entire crisis, affecting the reaction functions of populations across Europe."

Chris Iggo, chief investment officer in global fixed income at Axa Investment Managers, said: "The potential for a complete loss of confidence in the financial system is huge."

He said the levy on deposits had broken "another taboo," pointing to the fact that depositors have never before been required to participate in the funding of a bailout package.

"It's thrown up in the air the natural ranking of creditors and you just don't know where that's going to land." » | Matthew Attwood | Financial News | Monday, March 18, 2013

BOSTON.COM: Cypriot Deposits Grab Shocks Savers Across Europe: NICOSIA, Cyprus — A plan to seize up to 10 percent of people’s savings in the small Mediterranean island nation of Cyprus sent shockwaves across Europe on Monday as households realized the money they have in the bank may not be safe. » | Menelaos Hadjicostis | Associated Press | Monday, March 18, 2013