Cyprus said its banks would stay closed until Thursday as politicians from Nicosia and Brussels scrambled to row back on plans that triggered outrage around the world.
Stock markets fell in Asia and Europe as traders reacted to Cyprus’s €10bn (£8.6billion) bail-out plan, which included a raid on all bank deposits.
Under the deal, agreed by Cypriot ministers in the early hours of Saturday morning, a levy of 6.75% would be imposed on bank savings of up to €100,000. Deposits over this level would be hit with a 9.9% tax.
Billions of pounds were wiped off the value of banks across Europe. In the UK, Royal Bank of Scotland plunged 5.1% but finished down 3.4%,Markets in America fell in early trading.
“The madness of this decision about Cyprus is unfathomable,” David Kotok at Cumberland Advisors in the US told investors. the Mediterranean island nation becomes the fifth country to turn to the eurozone, following in the footsteps of Ireland, Greece, Portugal and Spain.
The emergency funding will be used to prop up the country’s banks which were hit by the financial restructuring of nearby Greece.
The Cypriot banking system had grown to be eight times the size of the country’s fledgling economy accounts for just 0.2% of the Eurozone’s gross domestic product.
But in a departure from previous bail-outs, the country’s savers are asked to make sacrifices. The terms of the deal mean that Cyprus’s savers will sacrifice up to 10% of their deposits in a move which will raise as much as €6 billion.
“Europe has found a new way to shoot itself in the foot.” Nicos Anastasiades, the president of Cyprus, said the deal was needed to avert a “disorderly bankruptcy”. But a vote in the Cypriot parliament to approve the deal was postponed amid a run on cash machines in Cyprus and international uproar. The vote is scheduled for 4pm on Tuesday.