| Cyprus, the island nation in the eastern Mediterranean is spooking the markets. A bailout of that nation’s banking system was announced on Saturday. Under its terms, international creditors agreed to provide 10 billion euros ($12.9 billion) to the country. In return, Cyprus plans to sell government assets, raise corporate-tax rates and impose a tax on interest earned in Cypriot banks. But most controversially, the aid package also requires a levy on deposits in all Cypriot banks. Under the plan, those with more than €100,000 in one of Cyprus’s banks will be hit with a 9.9% charge, while depositors with smaller amounts will see a 6.75% one-off tax. In return, the depositors will receive shares in the country’s lenders. The move marks the first time in the european debt crisis that depositors in any member country have been required to take a haircut on their bank holdings, and investors are unsure about the fallout. Italians and Spaniards are wondering if they will be next, and it is causing a run on European banks. |
