- nvestors jittery that both countries could need another EU rescue deal
- Spain in recession, Italy struggling to form government to clear huge debt
- EU finance chief suggested Cyprus could be blueprint for future bailouts
- Savers on island with more than £85k could lose up to 40% of their money
- ALL banks in Cyprus to stay closed until Thursday to stop run on deposits
- Cyprus will not to need to vote on deal because bank law already in place
- But Germany may have to hold vote before agreement can take effect
British savers in Spain and Italy could be next to suffer a Cyprus-style raid on bank accounts if those struggling economies fail again, it was warned today.
Investors have reacted nervously in the two countries after it emerged the Cypriot rescue deal could be used as a template for other bail-outs.
Both are seen as the most likely contenders for any future bailouts.
Spain is in recession, having suffered badly from souring property loans, and data points to a further deterioration that will hamper Madrid’s efforts to rein in public finances and keep government borrowing under control.
In Italy, concern is focused on the fall-out from inconclusive elections a month ago that left the eurozone’s third-largest economy battling to form a government, raising worries that reform efforts would be impaired.
Matt Basi, head of sales trading at CMC Markets, told MailOnline: ‘The general perception is that were Europe to take another turn for the worse, they (Spain and Italy) are the two largest economies most susceptible.’
Scroll down for video
He added: ‘This (Cyprus) bail-out is a potential template for other bail-out packages.
‘It is a natural consequence of the way markets have evolved and the way finance ministers have taken a stance against publicly funded bail-outs.
‘People are more averse to governments pumping money into banks and taking the burden.’
Under the Cyprus deal, bank customers with more than £85,000 of savings will have a chunk of their cash – possibly as much as 40 per cent – seized to bail out troubled lenders.
Spanish and Italian bond yields rose yesterday after remarks from the head of the eurozone’s finance ministers, Jeroen Dijsselbloem, suggested it could be used as a blueprint elsewhere in the region.
There are an estimated 750,000 Britons in Spain and 30,000 in Italy.
Both countries were bailed out in a £600billion deal last year and are again showing signs of uncertainty.
Spain’s public deficit, one of the highest in the eurozone, and uncertain growth outlook after almost four years of economic contraction put the country at the centre of the debt crisis last year.
Debt as a percentage of gross domestic product hit 84 per cent at end of 2012.
But the country’s economic minister said the crisis in Cyprus had not prompted any flight of bank deposits from Spain and insisted the problems facing the island were exceptional and unique.
‘To generalise the Cypriot situation to other economies in the eurozone is completely out of place,’ Luis de Guindos said.
De Guindos said he expected the Spanish economy to grow almost 1 percent in 2014 after returning to growth in the last quarter of this year.
The government expects the economy to contract by 0.5 percent this year overall, though is likely to revise this figure when it presents its economic plan to Brussels next month.
On Spain’s banks, de Guindos said the system would not need more aid after accepting a more than 40-billion-euro ($52 billion) package from Europe to rescue banks weighed down by hundreds of billions of euros in bad debt after the country’s property market crash in 2008.
In Italy, panic spread through European stock markets last month as political paralysis in elections sent shares tumbling.
The result slowed the country’s recent economic gains and threatened to tip the entire eurozone back into full-blown crisis mode.
In a rejection of the austerity reforms needed to ease the country’s massive debt, more than a quarter of voters backed the Five Star Movement, led by comedian Beppe Grillo.
Meanwhile, the disgraced former prime minister Silvio Berlusconi unexpectedly exploded back on the scene with 29.2 per cent of the vote.
Investors have been rattled by Berlusconi’s strong showing as he is demanding to be included in any new government.
However, there was no sign his centre-left rival Pier Luigi Bersani was considering such a move.
‘The situation in Italy has been overshadowed, but it remains a big risk factor,’ said Niels From, chief analyst at Nordea in Copenhagen.
‘There could be more focus on it now that they have to start more seriously to find a government.
‘The risk is of new or early elections and what the outlook is for how the parties will be (represented) in the parliament.’
Last night, Mr Dijsselbloem launched a desperate attempt to undo the damage after his comments, writing on Twitter: ‘Cyprus specific case. Programmes tailor-made to situation, no models or templates used.
The suggestion that savers in other eurozone countries – potentially in Greece, Spain, Portugal, Italy and even France – could be hit with a similar levy triggered a big slump in banking shares.
There was growing anger in Cyprus at the terms of the deal, with some senior politicians on the debt-stricken Mediterranean island suggesting it should quit the euro rather than accept it.
In what was branded a ‘fundamentally anti-democratic’ move, the German Bundestag will get a vote on the Cypriot bailout, while the island’s parliament will not.
After Cypriot MPs refused to back a deposit tax on all savers, a deal agreed with the EU and the International Monetary Fund will affect only the wealthiest – those with more than £84,660 (100,000 euros).
Getting cash out: People are pictured today withdrawing money from an ATM of the Bank of Cyprus in Nicosia
They will lose up to two-fifths of their bank savings. The deal will hit thousands of wealthy Russians who have stashed their money in Cyprus, amid widespread allegations of money laundering.
It will also bankrupt many Cypriot businessmen overnight.
Because the bailout plan is a restructuring – with one lender, Laiki, wound down altogether – it will not need to go to the Cypriot parliament for approval.
Germany rubbed salt in Cyprus’s wounds by declaring it was delighted with the outcome.
German finance minister Wolfgang Schauble said: ‘This is bitter for Cyprus, but we now have the result the [German] government always stood up for.’
Cyprus had been given until yesterday to raise £4.9billion to unlock a £8.5billion EU/IMF bailout, or face bankruptcy.
David Cameron said the crisis in Cyprus was a reminder both that Britain was right not to join the euro and of the need to press on with deficit reduction.
‘It is good that an agreement has been reached,’ the Prime Minister said. ‘The first proposal to tax people’s bank accounts under £100,000 was a complete mistake and I’m glad that has been avoided.’
Experts said Cyprus faced years of hardship in order to remain in the euro.
Shortages of food and medicine are expected in the coming weeks because of a lack of cash in Cypriot banks, the majority of which had been due to reopen today following more than a week of enforced closure.
But the country’s finance minister has now ordered all banks to remain shut until Thursday.
The announcement last night by the Central Bank of Cyprus came hours after it said all banks except the country’s two largest lenders, Laiki and Bank of Cyprus, would open this morning.
Banks have been closed since March 16 to avert a run on deposits as the country’s politicians struggled to come up with a plan that would raise enough funds to qualify for an international bailout.
An initial plan that would seize up to 10 per cent of people’s bank accounts had spooked depositors and was soundly rejected by MPs.
All except the country’s two largest lenders had been due to open today after the country clinched an 11th-hour deal with the 17-nation eurozone and the International Monetary Fund.
Without that deal, the country’s banks would have collapsed, dragging down the economy and potentially pushing it out of the eurozone.
But last night the Central Bank said that ‘for the smooth functioning of the entire banking system, the finance minister has decided, after a recommendation by the governor of the Central Bank, that all banks remain shut up to and including Wednesday’.
ATMs have been functioning, but many run quickly out of cash, and a daily withdrawal limit of 100 euros (£85) was imposed on the two largest lenders, Bank of Cyprus and Laiki.
Fiona Mullen, an economist specialising in Cyprus, said that while the deal had prevented an overnight exit from the euro, many Cypriots would wonder if it would be better off leaving anyway.
‘They feel very betrayed by an awful lot of countries in this and I think that there are going to be longer term implications,’ she said, adding there might be a ‘short term crunch’ on supplies of food, medicine and other essentials.
She said economic growth was likely to suffer: ‘Let’s say minus 15 per cent for the first year and minus 5 per cent the next year.’
Archbishop Chrysostomos II, head of Cyprus’s Orthodox Church, repeated his calls for an exit from the single currency.
Earlier, Mr Dijesselbloem, who is the Dutch finance minister, had said: ‘If there is a risk in a bank, our first question should be “OK, what are you in the bank going to do about that? What can you do to recapitalise yourself?”
‘If the bank can’t do it, then we’ll talk to the shareholders and the bondholders, we’ll ask them to contribute in recapitalising the bank, and if necessary the uninsured deposit holders.’
Eurozone bank shares were hit by his remarks. Italy’s Intesa Sanpaolo slumped by 6.2 per cent, Santander slid 3.2 per cent, Société Générale 6 per cent and Credit Agricole 5.8 per cent.