Source: Reuters

12.10 Meanwhile, European bank shares have taken a more-than-2pc
tumble amid fears the Cyprus bailout could usher in a new era where bank
deposits are no longer sacrosanct.

The sector as a whole has slumped 2.3pc, with RBS shares suffering the
deepest falls, down 5.1pc. Shares in Barclays fell 4.7pc,
Lloyds stock slid 2.8pc and Standard Chartered shares dropped 2.5pc.
Speaking to Reuters, a French bank executive said:

Quote
The Cyprus proposal is really worrying. It creates a precedent that means
other countries may potentially soak depositors in the future.

If you’re a small depositor in Cyprus, you’ll tell youself that it would
have been better to keep your money under the carpet than in a bank. And if
you’re a Greek, a Spaniard or an Italian, well, you’ll tell yourself that
you might be next.

It’s frankly irresponsible.

12.06 Returning to the markets now where gold prices saw their steepest
gain in more than a month, rising more than 1pc to $1,604 per ounce. Read
our full story here.

Gold prices shot up on Monday morning. Source: Bloomberg

11.54 Here are more snaps of the gathering protest outside the Cypriot
parliament buildings in Nicosia, courtesy of Reuters.

And here is president Nicos Anastasiades arriving at the scene.

11.49 ECB Governing Council member Ewald Nowotny, speaking on
Austrian radio, said the eurozone periphery nations have “nothing
to fear” from the Cyprus bailout, since the island’s unique
circumstances – a banking system that makes up an above-average proportion
of national output and a particularly high share of foreign depositors –
make it a special case.

Ewald Nowotny, Austrian central bank governor and member of the ECB
governing council

11.40 And now Reuters is reporting that the vote has been postponed
until Tuesday at 4pm GMT, citing Yiannakis Omirou, the speaker of the
Cyprus parliament.

11.36 We just reported (11.08) that the Cypriot government is
looking at introducing a tax-free threshold of €20,000. But some politicians
are determined to go further than that. According to French news agency AFP, Michalis
Sarris
, Cypriot finance minister and Panicos Demetriades, the
central Bank governor separately told parliament that they were looking to
see a tax-free threshold for savings up to €100,000, and
ramping up the charge on deposits larger than this. Mr Sarris said that of
the €67bn euros in deposits, €30bn represent savings held in accounts of
less than €100,000. Mr Demetriades told parilament:

Quote
I suggest we work on the numbers again, if we don’t we will be unable to
rebuild trust among depositors because we have broken our contract with them.

He assured parliamentarians that if the law is passed, the ECB will hold an
emergency meeting aimed at injecting extra liquidity into Cyprus banks to
stabilise them against a possible rush on accounts, adding “There will
be a large outflow but we will deal with it.”

Meanwhile, Mr Sarris said there had been a change of stance from Cyprus’
troika of international lenders. He said:

Quote
Together with the Central bank we are discussing the reconfiguration of rates
which are close to zero for €100,000.

11.22 In Cypriot capital Nicosia protestors have gathered outside the
government buildings as MPs frantically look to tweak the terms of the
bailout to protect small deposit holders. Meanwhile Spanish Twitter users
have adopted the hashtag #SomosChipre, meaning ‘We are Cyprus’, in a
statement of solidarity.

A Cypriot man holds a banner against the EU bailout deal and German
Chancellor Angela Merkel’s call for Cyprus to follow economic reforms
outside the parliament building in Nicosia. Credit: AFP

11.08 Reuters has just reported that the Cypriot government is
considering a tax-free threshold of €20,000, with the 6.7pc
levy kicking in for deposits between €20,000 and €100,000, and a 9.9pc
charge thereafter.

11.01 Vincent Forest, Cyprus analyst at The Economist
Intelligence Unit, believes there is a serious risk of contagion to the
rest of so-called ‘Club Med’
of peripheral eurozone countries.

Quote
The decisions taken during the weekend in Cyprus are far more interesting for
what they tell us about the mindset of decision makers in Europe than on the
Cypriot situation. Given the small size of the Cypriot economy, there was
little choice but to impose some losses for the Cypriot bail-out to be
viable, the main question was who should bear them? The Cypriot bail-out is
similar to its predecessors in that most of the cost is borne by the
population.

Although it is a tax and not a default, the essential message sent to the
markets and the population is that a bail-out poses some risks to the
depositors. If depositors in Cyprus and across Europe fear for their
deposits, there is a risk that these depositors will withdraw their money en
masse, which constitutes the first step of a bank run. There is a serious
risk of contagion to other peripheral eurozone countries, most likely via
loss of confidence and increased volatility in financial markets.

Although not our central forecast, the risk of a bank run spreading across
the eurozone has increased, which would be hardly stoppable and have
extremely detrimental consequences.

10.38 Rumours are swirling around Twitter that Cyprus’ parliamentary
vote on the bailout could be delayed until as late as Friday.

10.37 Earlier we reported that Russia may look to extend its €2.5bn
loan to Cyprus. Now there are reports the finance minister is looking into
restructuring the debt.

10.21 Reuters has reported that Cyprus is mulling a tax-free
threshold for smaller bank deposits
, citing an unnamed government
source, who said that while the terms may stay the same, things could change
by the time final legislation is submitted to parliament this afternoon.
According to the source:

Quote
There is an attempt to mitigate the burden on smaller depositors, with a zero
tax rate.

10.18 Yiannis Mouzakis, who blogs as The
Prodigal Geek
, has provided a breakdown of the Cypriot parliament,
and concluded that the ‘Yes’ vote could range between 27 and 30, depending
on the vagaries of the smaller parties. He notes that one of the president’s
MPs is hot-footing his way back from Argentina to participate in the crucial
vote. Here is the Cypriot Parliament by numbers:

Cypriot Parliament: 56 seats

Anastasiades party ΔΗΣΥ (DISI): 20 seats

ΔΗΚΟ (DIKO) (coalition party): 8

ΑΚΕΛ (AKEL): 19

ΕΔΕΚ (EDEK): 5

Greens: 1

ΕΥΡΩΚΟ (EUROKO): 2

Independent: 1

Quote
No matter what today’s outcome, Cyprus’ banking system will not be the same
ever again. If Germany’s intention was to reduce the size of it – closer to
the eurozone average – they managed to achieve that with a masterful stroke
in just one weekend.

Deposits flight combined with the sale of the Greek operations will
probably leave the Cypriot banking system half the size it was on Friday
night, even left with one systemic bank after restructuring.

Cannot see a smooth transition period without some form of capital
controls.

By the time the dust settles, the Cypriot economy will sink and PIMCO’s
adverse scenario will materialise. Many people did their best to make this a
reality.

10.05 Thomas Pascoe has branded the Cyprus bailout a “disgraceful
precedent” in his blog.

The principle that there is no division between your private property and
communal property which may be appropriated by the government whenever it
sees fit is an outrageous one in any system other than Communism. The idea
that a government which has chronically misspent may order the banks to
close and deduct a sum of its choosing from a person’s balance before
allowing it to re-open is beyond parody.

10.02 The Bank of Cyprus UK has released an official statement
assuring its depositors will be unaffected, since it is a UK bank.

09.57 Breaking: Russian energy giant Gazprom has offered Cyprus
an alternative to the Troika bailout in exchange for exploration rights for
natural gas in the island, according to reports
in the Greek media. Broadcaster Sigma TV reported that the company
submitted a proposal to the office of Nicos Anastasiades, Cyprus’ president,
on Sunday evening. However Mr Anstasiades is not willing to discuss the
Russian’s offer according to Newsit who cited an anonymous
source close to the President. It quoted the anonymous source as saying:
“The president is not going to discuss this plan because he wants a solution
that will come from the EU.”

09.51 Dow Jones and Wall Street Journal reporter Matina Stevis
reports on a Cypriot MP’s reaction to the bail out deal:

Credit: AFP

09.41 Reuters editor-at-large Hugo Dixon foresees contagion
hitting Italy harder than elsewhere.

09.39 Reuters has produced a neat graphic showing how the
depositor levy on uninsured deposits (those above €100,000) would be
affected by bringing down the tax on so-called ‘insured’ deposits – those
under €100,000. Play with it here.

Source: Reuters

09.30 We should expect news around 2pm on how the Cypriot
parliament votes on the terms of the bailout, according to reports.

09.24 Earlier (07.43) we reported German finance minister Wolfgang
Schauble’s
claim that his government was not the driving force behind
the depositor levy. But according to Greek journalist Efthimia Efthimiou,
this is far from the whole story.

09.16 The initial shock has subsided on the European markets,
though they are still weighed subdued. The FSTE 100 is now down 0.8pc,
while Spain’s IBEX and Italy’s MIB are still suffering the
most, down 1.92pc and 2.2pc respectively.

09.12 The Telegraph’s Diplomatic Correspondent Alex Spillius
explains how Cyprus was brought to its knees.

Throughout the past decade, Cyprus gained a reputation as a centre for
money-laundering. Among those booming numbers of foreign visitors were
thousands of Russians, attracted by political connections with Moscow that
went back decades, a shared Orthodox faith, and a banking sector that not
only didn’t ask too many questions, but commonly pays interest rates of six
per cent and upwards.

Over the past decade, many such Russians settled in Cyprus or bought second
homes. The city of Limassol, the financial centre, became known as
“Lima-grad”: it now boasts expensive boutiques for Muscovites, rental firms
offering Porsches rather than Fiat Pandas, and three Russian-language
newspapers.

Like Monaco, then, Cyprus has become something of a sunny place for shady
people. “There are girls with legs that go on forever and men who insist on
wearing sunglasses throughout the gloomy Cypriot winter,” says Smith. “They
have vulgar villas, which cause a lot of consternation – blocking other
people’s views and so on – but they tend to throw their money around and get
their way.”

It is estimated that some 20 billion of the 70 billion euros on deposit in
Cyprus – a country of only 800,000 people – belongs to Russians. Those
deposits helped the banking sector grow beyond all reason, just like in
Iceland. By 2011, the IMF reported that the assets of Cypriot banks were
equivalent to 835 per cent of annual national income. Some of that was down
to investment by foreign-owned banks, but most was Cypriot.

Read his whole piece here.

09.05 Earlier (08.26) we mentioned Russia’s potential
role in supporting Cyprus’ banks, with Mr Putin branding the bailout “unfair”
and “dangerous”. However Russia’s deputy finance minister Anton
Shatalov
has come out in support of the bailout, saying the plan is fair
if it is imposed on interest earned on deposits. He also stoked controversy
by saying he did not pity Russian businessmen, adding “I think they
will not like it.” Speaking to reporters on Monday morning, he said:

Quote
A minimum tax rate of 7pc on the deposit and 10pc as a maximum, this is of
course, big, if it is approved like this.

A possible option that has been widely reported suggests a possibility of
implementing a 10pc levy on the interest rate earned on the deposits.

If that were to happen, that would not be that horrible and it would be
absolutely fair.

08.53 The US dollar is not the only “safe haven” asset
enjoying a boost from Cypriot bailout fears. Jitters sent gold back above
$1,600 for the first time this month, while government bond yields of
northern and southern European countries dramatically diverged, as is
evident from the Bloomberg snapshot below.

The cost of borrowing for the UK, Germany and France has fallen
sharply while Italian, Portuguese and Greek bond yields shot up. Source:
Bloomberg

08.43 Cypriot officials are denying rumours that the government will
institute an impromptu bank holiday on Tuesday
should today’s
parliamentary vote block the bailout, according to Greek journalist Efthimia
Efthimiou
.

08.26 There are hopes that Russia, where many citizens hold
significant bank deposits in Cyprus, will play a key role in rehabilitating
the island’s struggling banks. EU officials say they expect Russia to extend
a €2.5bn loan to the debt-stricken government by five years
until 2021, though no decision has yet been reached. Russian investors
are also expected to get involved in recapitalising Cypriot banks. Vladimir
Putin
, president of Russia, has reportedly spoken out against the
Cypriot bailout, branding it “unfair, unprofessional and dangerous”.
Russian banks had about $12 billion placed with Cypriot banks and corporate
deposits amounted to $19 billion at the end of 2012, according to Moody’s
rating agency.

08.19 Returning to the currency markets, where the euro has
fallen the most in 14 months against the US dollar, sliding 1.3pc to $1.2913
at 07.50am after dropping as much as 1.5pc. The 17-nation common currency
also declined by the most in three weeks against the Japanese yen, down
1.8pc to 122.36 yen after falling a much as 2.8pc.

08.17 Think tank Open Europe has published a table on the
different levy rates which Cyprus could charge do raise the 5.8bn the
proposed plan aims to generate.

08.12 Ian Cowie, our head of personal finance, has contrasted the
Cypriot “smash and grab” bailout with Britain’s “slow motion
bank robbery” in his blog.

Outrage about the Cyprus banks euro tax bail-out should not be allowed to
obscure the fact that millions of savers in British banks have already lost
much more of the real value or purchasing power of their money to prop up
financial institutions closer to home.

So savers of all descriptions are paying a high price for the Bank of
England’s strategy of maintaining negative real interest rates. Sadly for
the millions of victims of this slow-motion bank robbery in Britain, it
remains too complex to explain on the front page or in TV bulletins and so
much more coverage will be given to a relatively small scale smash and grab
with fewer victims in Cyprus.

08.06 The Telegraph’s Brussels correspondent Bruno Waterfield
reports that the Cypriot government wants to revise the terms of the bailout
so that depositors holding up to €100,000 are charged 3pc,
those with deposits between €100,000 and €500,000 face a 10pc
levy and those with the largest deposits, more than €500,000,
take the biggest hit at 15pc.

08.02 European markets have just opened to plummeting stock prices
across the board. The FTSE 100 slumped 1.5pc, while the IBEX
in Madrid tumbled 2.85pc and the MIB in Milan slid 2.78pc
in early trading. Germany’s DAX fell 1.4pc.

07.55 There are suggestions that the Cyprus bailout could leave small
savers alone if it charged those with deposits of more than €100,000 15.4pc.

07.43 Wolfgang Schauble, German finance minister, has played down his
government’s influence over the bailout, saying that Berlin would have
respected the EU bank deposit guarantee on small savers’ insured deposits,
but that the Cypriot government, the European Commission and European
Central Bank decided against it. Speaking in an interview on German
broadcaster ARD on Sunday, he said:

Quote
It was the position of the German government and the International Monetary
Fund that we must get a considerable part of the funds that are necessary
for restructuring the banks from the banks owners and creditors – that means
the investors.

But we would obviously have respected the deposit guarantee for accounts up
to 100,000. But those who did not want a bail-in were the Cypriot
government, also the European Commission and the ECB, they decided on this
solution and they now must explain this to the Cypriot people.

Wolfgang Schauble, German finance minister

07.32 Mats Persson, Director of think tank Open Europe, warns in
his blog
that today’s vote in the Cypriot parliament could result in the eurozone’s
first departure. While he concedes that the bailout is worse than “letting
Cyprus sink and leave the euro”, he says it is “in a league of its
own”, amounting to Cypriot depositors falling victim to the forthcoming
German election in September.

This will be a nail-biter. The parties which supported Cypriot president
Nicos Anastasiades only hold 28 out of 56 MP, so not a majority. Yesterday,
Anastasiades issued a stark warning: accept the bailout deal or face “a
complete collapse with a possible exit from the euro”. Given the huge
stakes, I reckon that MPs will approve the deal, but it could be close –
current voting arithmetic suggests 30 in favour and 26 against, but this is
incredibly fluid. Even if the parliament does reject the package, there
could still be room for further negotiation.

07.24 Benedict Brogan, The Telegraph’s Deputy Editor, argues
that the Cypriot bailout has “potentially dire” consequences for
Chancellor George Osborne and his Budget.

He was praying for not another crisis from across the Channel. The news
from a small island may force him to revise what he has to say yet further,
and could blow apart what recovery there might have been, with political
consequences for the Tories, David Cameron, and him.

Read his whole blog entry here.

07.06 More analysts are chiming in with the warning that depositors
across the peripheral euro area countries will feel threatened by the Cyprus
bailout deal. Lars Seier Christensen, the chief executive of Denmark’s Saxo
Bank, wrote:

Quote
If you can do this once, you can do it again.

While Mohamed El-Erian, the chief executive of Pimco, the
world’s largest bond investor, said:

Quote
In Europe, it [the Cyprus bail-out] could well undermine the recent tranquil
behaviour of depositors and creditors in other vulnerable European economies
– in particular Greece, Italy, Portugal and Spain.

Despite assurances from European officials that Cyprus is ‘exceptional’ and
the measures are ‘unique’, this weekend’s actions have increased the risk
premium.

Joachim Fels, the chief economist at Morgan Stanley in London,
described the levy on bank deposits as:

Quote
A worrying precedent with potentially systemic consequences if depositors in
other periphery countries fear a similar treatment in the future.

06.58 European banks could suffer credit rating downgrades over the
turmoil in Cyprus, according to Moody’s. The ratings agency said the
decision is negative for depositors in Europe and marks a significant step
towards limiting systemic support for bank creditors in the region.

Credit ratings for banks across Europe could be hit by the Cyprus bailout,
according to Moody’s.

06.55 Jim Antos, a Hong Kong-based analyst at Mizuho Securities
Asia, has warned the move could bring about a profound shift in savers’
behaviour across Europe. He told Bloomberg:

Quote
From the social planning point of view and the idea of keeping depositor
confidence in general, this is a terrible precedent to set.

People in Europe are probably going to think hard about how much money they
should put in a tin can and bury in the back yard.

06.51 There are reports the Cypriot government will instate another bank
holiday on Tuesday
should today’s parliamentary vote fail to approve the
deal.

People queue to use an ATM machine outside of a Laiki Bank branch in
Cyprus. Many rushed to cooperative banks after learning that the terms of a
bailout deal includes a one-time levy on bank deposits.

06.47 While the Cyprus bailout is relatively small, the “levy
could have wide-ranging repercussions on eurozone bank deposits in other
peripheral countries,
despite Cyprus… being labelled as ‘unique'” Credit
Agricole
said. A political deadlock in Italy also weighed on euro
sentiment with doubts about talks aimed at forming a government, it added.

Quote
There is little to suggest a deal is in the offing with the risk skewed
towards protracted negotiations and fresh elections.

06.45 Although the bailout plan has not yet been voted through by the
Cypriot parliament, analysts predict market chaos on Monday.

David Baran, co-CEO of asset manager Symphony Partners, told Dow Jones
Newswires:

Quote
Even though the bailout of Cyprus (and subsequent levy on Cypriot bank
deposits) will be put to a vote, the situation could very well lead to a
selloff in the euro and a more risk-off investor stance globally.

But given the expectations of the new Bank of Japan leadership, the euro is
likely to fall more against the dollar than against the yen.

Japanese equities, despite their recent rise, are nowhere near their
all-time highs as are US stocks.

06.37 However David Cumming, Standard Life’s UK head of
equities, has told the BBC Radio 4’s Today programme, that he did not expect
there to be contagion as a result of the Cyprus deal. He added:

Quote
I don’t see the impact from this [in markets] lasting for more than a few days.

06.30 In the currency markets, investors fled to the US dollar, which
strengthened 0.7pc against a basket of the major world currencies, in favour
of the euro, which slid to a three-week low against the US currency of
$1.28888.

The euro is set to fall sharply against a basket of major global currencies
on Monday morning. Source: Bloomberg

Meanwhile, investors are set to flee to the ‘safe’haven’ US dollar.
Source: Bloomberg

06.17 Stocks and commodities fell sharply in Asia overnight, with the Nikkei
in Japan slumping 2.71pc and Hong Kong’s Hang Seng dropping 2.12pc.
European and US equity markets are all set to open down. FTSE 100 futures
are down 1.93pc, and elsewhere in Europe the CAC is forecast
to open down 0.74pc, the German DAX down 0.16pc,
Madrid’s IBEX down 0.56pc and the MIB in Milan down 0.32pc.
US markets are braced for a beating too. Dow Jones futures are down 1pc,
while the S&P 500 is set to open down 1.35pc from Friday’s
close.

Asian markets – the first to react to news of the bailout – fell
steeply overnight

06.00 Good morning. Investors across the world have been spooked by a radical
bailout plan
for Cyprus involving a raid on bank deposits held in
the nation’s banks, a plan Nicos Anastasiades, the island’s president, has
described as “painful” but “necessary”. The proposal to
impose an “up front one-off stability levy applicable to resident and
non-resident depositors” has sparked chaos in Cyprus, where politicians are
working to avoid a run on the banks after ATMs
were depleted
within hours of the announcement on Saturday morning,
and anger across the EU. The tax is planned as a 9.9pc raid on deposits of
more than €100,000 and 6.7pc on all other deposits.

The Cypriot bailout follows those for Greece, Portugal, Ireland and Spanish
banks, and it is the first one that dips into people’s savings to finance a
bailout. Analysts worry the move could roil international markets and
jeopardize Europe’s fragile economies.

Reports emerged on Sunday evening of eleventh-hour measures by the Cypriot
government – who are due to vote on the measures later today – to soften the
blow on smaller savers, involving a less punishing, 3pc levy on deposits
worth less than €100,000, and revising the charge on anything above that up
to 12.5pc.

Cyprus bailout – live – Telegraph.co.uk
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