The escalating crisis in Cyprus sent world markets plummeting to dangerous levels yesterday (March 21), with London’s FTSE 100 Index falling for a fifth straight session.
Following the downward spiral of the Index to 6375.2 (-0.9%), the European Central Bank appears to be losing patience and has given Cyprus a strict deadline to accept the terms of the €10bn (£8.7bn) bailout package agreed over the weekend.
Lawmakers in the Mediterranean island rejected a levy on savers’ bank deposits on Tuesday (March 19) which would have seen those with savings in excess of €20,000 lose 6.75% of their savings and those with over €100,000 (£86,490) lose 9.9%.
After the controversial savings deposit levy was rejected, Cyprus has now been given just three days to accept the terms of the bailout package or the panic-stricken banks will be cut off from funding altogether.
Cyprus was in need of a €17bn bailout. The troika of international lenders – the EU, the European Central Bank and the International Monetary Fund – agreed to the €10bn bailout of the island, with the prerequisite that €5.8bn be raised elsewhere. The remaining €1bn will come from privatisations of Cypriot assets.
The Cypriot Parliament rejected the proposal to raise €5.8bn by taxing deposits held in Cypriot banks; in fact, the bailout plan failed to garner a single ‘yes’ vote.
Cypriot leaders are now scrambling to find an alternative while banks stay closed and ATM withdrawals remain limited.
On Wall Street, the Dow Jones Industrial Average fell 0.5% in early trading, while the Cac 40 in France slumped 1.6% and Germany's Dax was more than 1% lower, sparking fears of a new phase in the eurozone crisis.
It remains unclear whether Cyprus is a temporary headline or the beginning of fresh misery in the eurozone crisis.