Euro Drops As Relief From Cyprus Deal Turns To Fear

 
on March 26 2013 7:53 AM
Euro Symbol building 2
The euro currency sign is seen in front of the European Central Bank headquarters in Frankfurt. Reuters

The euro retreated on Monday evening after rumors circulated that Cyprus' bailout deal could set a precedent for future eurozone aid packages. The common currency dropped to 1.2876 on Tuesday morning at 7:00 GMT.

Reuters reported that Dutch Finance minister Jeroen Dijsselbloem remarked that the last minute Cyprus deal could become a template for bank restructurings in other struggling eurozone countries, which caused the euro to retreat as investors worried about capital flight in other struggling southern European nations.

The European Union, European Central Bank and International Monetary Fund agreed to pay out $13 billion worth of rescue funds in exchange for painful banking reforms that will force large account holders to bear the brunt of the losses.

In order to avoid a collapse of the nation's banking system, Cyprus' second largest bank will be shut down, and uninsured accounts worth more than 100,000 euros will be tapped to help fund the bailout.

It remains unclear how much these accounts, which have since been frozen, stand to lose but many are expecting the accounts to decrease by about 40 percent of their balance.

As Cypriot banks prepare to open after an extended bank holiday, hostility and uncertainty within the nation is evident. The tiny island nation will be forced to employ capital controls in order to prevent account holders from flooding the banks and withdrawing all of their money.

Cypriot leaders have pushed back the banks' reopening until Thursday in order to prepare for the worst and get the new measures in place.

(c) 2013 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

 

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