European markets have followed Asian shares downward on fears that the plan to bailout Cyprus could trigger an escalation of the eurozone debt crisis.
International markets in Asia and Europe opened down on Monday on the news of an unprecedented proposed bailout by the European Union and the International Monetary Fund for Cyprus that would put a tax on bank savings to finance the bailout. Cyprus’s Parliament will hold an emergency session on Monday to discuss the bailout, which has angered the public and caused a bank run as people rushed to remove their savings before being hit with a tax. Cypriot President Nicos Anastasiades pleaded to the angry public to accept the deal, saying the country is facing its worst crisis since the Turkish invasion in 1974. Cyprus is the fifth European nation to appeal to the EU for bailout, and the country had apparently invested heavily in Greek debt:
Under the currently agreed terms, depositors with less than 100,000 euros in Cyprus accounts would have to pay a one-time tax of 6.75%. Those with sums over that threshold would pay 9.9%.
Our correspondent says the president may want to lower the former rate to 3%, while raising the levy on the larger depositors to 12.5%.
An EU source told Agence France-Presse there could be a three-way split on the level of levy, grouped into accounts holding less than 100,000 euros, between 100,000 and 500,000 and more than 500,000.
Nobel Prize winning economist and New York Times columnist Paul Krugman wrote in his Sunday column that "It’s as if the Europeans are holding up a neon sign, written in Greek and Italian, saying “time to stage a run on your banks!”