Cyprus Deal Adds to Mounting Eurozone Concern

By Roger Baettig | March 18 2013 8:28 AM

The euro fell below $1.30 to a three month low on Monday morning. The common currency tumbled after news that eurozone leaders agreed on a bailout plan for Cyprus which imposes a levy on banks within the island.

Reuters

According to reports, the Cypriot government is close to securing a far more palatable offer from Moscow than what would be offered by the EU.

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The package, worth 10 billion euros, is essential to keep Cyprus from defaulting on loans; however the terms of the aid package have many economists worried.

According to Reuters, banks will be taxed in order to fund part of the sum and are expected to lose between 6.75 and 9.9 percent of their money.

The decision was strongly cautioned by the ECB, and has rattled markets and put pressure on the euro. Cypriot officials are working to find a way to keep the taxes from having a large impact on small savings accounts and will vote today to ratify the levy.

Polls show that more than 70 percent of Cypriots oppose the levy and many are worried that the decision to fund the nation's debt using a small part of every bank account will set a precedent for future funding needs in other countries.

Photos of Cypriots flooding the banks to withdraw money have caused investors to pull their money from surrounding eurozone countries and disrupted financial markets.

The Cyprus decision has added to a growing list of problems that stand to derail the eurozone recovery. With Italy still struggling to put together some type of government following their inconclusive elections and Spain battling Mariano Rajoy's recent political scandal, many are worried that uncertainty over the Cyprus decision will cause the region's recovery efforts to crumble.