March 18 - The euro skidded lower in Asia early Monday as
surprise news that Cyprus would have to tax depositors as part
of a bailout plan was taken as setting a dangerous precedent
that could ultimately risk runs on some banks in the region.
The single currency was changing hands at $1.2920
, down from $1.3054 late in New York on Friday. It was
also down at 121.74 yen, from around 124.54.
The U.S. dollar was a major beneficiary of safe-haven flows,
rising 0.5 percent against a basket of currencies to reach
"The week was off to a chaotic start on the Asia open this
morning after Saturday's Eurogroup announcement on Cyprus'
bailout deal," said analysts at JPMorgan.
"The fear will be that haircutting depositors in the Euro
area renews deposit flight from peripheral banks."
Euro zone leaders and Cyprus agreed on Saturday that
depositors should be taxed up to 10 percent - 6.7 percent on
amounts below 100,000 euros and 9.9 percent on figures above
that - to raise 5.8 billion euros so the island country could be
eligible for an international bailout.
Taxing depositors would be a major change from usual
practice and could incentivise depositors in other debt ridden
countries to shift their money to EU banks that would not be at
risk, such as in Germany.
The news triggered a run on cash points on Saturday,
depleting them within hours while it was unclear whether banks
would open for business on Tuesday after a Monday bank holiday.
There was also a risk the Cyprus parliament would vote
against the tax proposal.
Which could be why Cyprus was in talks with international
lenders on Sunday to possibly change the size of proposed levy's
on bank deposits, a source close to the consultations said.
Cyprus was discussing with lenders the possibility of
changing the levy to 3.0 percent for deposits below 100,000
euros, and to 12.5 percent for those above that.