The Euro plunged by more than 1% against the dollar and 1.4% against the yen early Monday as markets reacted negatively to the eurozone's Cyprus bailout plan, an initiative that includes a tax on bank deposits.
The eurozone released a statement on Saturday pushing its bailout plan as necessary to ensure the stability of the common continental currency and the banking sectors of both Cyprus and Greece, but investors saw a plan fraught with danger.
Eurozone and Cyprus leaders decided Saturday that a 6.7% tax on deposits less than 100,000 euros and a 9.9% tax on deposits greater than that would help raise up to 5.8 billion euros in revenue to clear the debt-plagued country for an international bailout. Cyprus citizens reacted by launching a run on ATMs, hurriedly withdrawing money before the Cypriot parliament could approve the bailout measure and levy the tax.
Some market analysts expressed concern that such a radical measure from the eurozone and Cyprus could hurt confidence in the shaky European banking system by threatening the safety of insured bank deposits. While no other debt-strained European nation has touted the idea of taxing savers, any bank run in Cyprus due to the measure could spark fears in larger economies that face crippling public debt, such as Spain and Italy, they said.
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