Cyprus’ woes send EU markets reeling

HEAVY LEVY::National benchmark indices in 18 Western European markets, except Ireland, fell on fears that Nicosia could set a precedent for troubled member states


Sun, Mar 24, 2013 - Page 15

European stocks posted the biggest weekly decline in four months as a proposal to impose a levy on bank deposits in Cyprus sparked concern it would set a precedent for other eurozone economies seeking aid.

The benchmark STOXX Europe 600 Index fell 1.1 percent to 294.04 this week, the biggest drop since Nov. 16. The measure has still gained 5.1 percent so far this year as US lawmakers agreed on a compromise budget and reports on housing and jobs fueled optimism the world’s largest economy is recovering.

“The capacity for European stock markets to outperform strongly during 2013 has been dealt a blow by the reminder that European tail risks can flare up quickly and knock investor confidence,” John Bilton, European investment strategist at Bank of America Corp’s Merrill Lynch unit, wrote in a note.

Without “a quick resolution to the crisis and a clear statement from policymakers that Cyprus is unique, there is likely to be a lingering impact on confidence,” he added.

National benchmark indices retreated in all the 18 Western European markets this week, except Ireland. The UK’s FTSE 100 fell 1.5 percent. France’s CAC 40 slid 1.9 percent and Germany’s DAX slipped 1.6 percent. Greece’s ASE Index tumbled 3.1 percent, while the stock market in Cyprus was closed all week.

Cypriot President Nicos Anastasiades on March 16 agreed to a demand by eurozone finance ministers to raise 5.8 billion euros (US$7.5 billion) by imposing a charge on every bank account in the country.

Cyprus’s parliament rejected the levy on Tuesday, setting up a showdown with the European policymakers who insisted on a contribution from the island nation as a condition for the release of 10 billion euros of emergency loans.

The European Central Bank has said it will withdraw Cypriot lenders’ access to liquidity after tomorrow unless the government agrees to a bailout from the EU and the IMF.

Cyprus did not get the loans it sought from Russia, although the two countries will continue talking, Cypriot Finance Minister Michael Sarris said.

A purchasing managers’ index for German manufacturing unexpectedly fell to 48.9 this month, a report showed on Thursday. The median economist forecast had called for 50.5, according to a Bloomberg News survey. A reading below 50 signals a contraction. A separate report showed that manufacturing in France shrank more than estimated.

An index of mining companies posted the biggest drop on the STOXX 600. Kazakhmys PLC plummeted 13 percent and Lonmin PLC plunged 9.3 percent.

In the UK, homebuilders rallied after British Chancellor of the Exchequer George Osborne on Wednesday announced a new Help-to-Buy program to support the housing industry. He committed £3.5 billion (US$5.3 billion) to help first-time buyers purchase new homes and offered guarantees sufficient to support £130 billion of mortgages.

Persimmon surged 8 percent and Barratt Developments jumped 9.8 percent. Taylor Wimpey PLC climbed 6.1 percent.