Cyprus savings account seizure plan draws fury

2013-03-19T00:00:00Z Cyprus savings account seizure plan draws furyThe Associated Press The Associated Press
March 19, 2013 12:00 am  • 

NICOSIA, Cyprus - A plan to seize up to 10 percent of people's savings in Cyprus sent shockwaves across Europe Monday as households worried their bank accounts may not be as safe as they thought.

Analysts downplayed the risk of immediate bank runs outside of Cyprus, but the proposal dented confidence in Europe's banking system.

Though the euro and stock prices of European banks fell, global financial markets largely remained calm.

The plan to seize up to 10 percent of savings accounts in Cyprus to help pay for a 1/415.8 billion ($20.4 billion) financial bailout was met with fury, while lawmakers wrangled over how to keep the island nation from bankruptcy.

Political leaders in Cyprus scrambled to devise a new plan that would not be so burdensome for lower-income people.

The authorities delayed a parliamentary vote on the seizure of 1/45.8 billion ($7.5 billion) and ordered banks to remain shut until Thursday while they try to modify the deal, which must be approved by other eurozone governments. Once a deal is in place, they will be ready to lend Cyprus 1/410 billion ($13 billion) in rescue loans.

A rejection of the package could see the country go bankrupt and possibly drop out of the euro currency - an outcome that would be even more damaging to financial markets' confidence.

Even while playing down the chance of fresh market turmoil, experts warned that the surprise move broke an important taboo against making depositors pay for Europe's bailouts. As a result, it may have longer-term consequences for confidence in Europe's banking system - and its ability to end its financial crisis.

"It's a precedent for all European countries. Their money in every bank is not safe," said lawyer Simos Angelides at an angry protest outside parliament in Cyprus' capital, Nicosia, where people chanted, "Thieves, thieves!"

Eurozone finance ministers held a telephone conference Monday night and concluded that small depositors should not be hit as hard as others. They said the Cypriot authorities will stagger the deposit seizures more, but they remained firm in demanding that the overall sum of money raised by the seizures remain the same.

In the short term, there was little sign of a new explosion in the European financial crisis. Stock markets dropped in early hours but stabilized by the close. The Dow Jones industrial average fell 62.05 points, or 0.4 percent, to 14,452.06 Monday.

The euro fell 0.6 percent, a bad day, but hardly a token of impending doom. Government bond prices for Italy and Spain were unchanged, suggesting that investors do not expect the market trouble to spread beyond Cyprus for now.

Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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