The Cypriot parliament rejected an the levy on bank deposits, which dealt a severe blow to the European Council’s plans of having depositors be part of the country’s rescue. This result was not good for a region already under siege.
Cypriot legislators voted 36 “against” to none “in favor” of the proposal as the vote was taken by a show of hands. There were 19 abstentions. The rejection of the deal put together by euro-area finance leaders over the weekend, saw the EUR fall and equity markets come under pressure as well. The original deal had intended to raise EUR 5.8B by drawing funds from Cyprus bank accounts in return for EUR 10.0B in international aid.
European officials including Dutch Finance Minister Jeroen Dijsselbloem had said earlier that Cyprus must contribute to its own bailout. While many EU ministers are intent on having Cyprus bear some of the burden, they are also quick to state that this situation is unique. In other words, other countries need not worry that if Cyprus is forced to contribute, they will also be forced to contribute.
Adding to the bad news, German coalition lawmakers said that Cyprus can expect no aid without meeting the terms. “Cyprus has rebuffed the outstretched hand” of its partners, Hans Michelbach, a German lawmaker from Chancellor Angela Merkel’s Christian Democratic bloc and the ranking member on parliament’s finance committee, noted in a statement. The vote is “an act of collective unreason” and “the people of Cyprus must now pay a high price.” That does not sound good and while the EUR has rallied from a low of 1.2840-45 to get back to 1.2885-90, the pressure on the ccurrency remains.
After the vote the ECB stated that it “takes note of the decision of the Cypriot Parliament and is in contact with its Troika partners” from the International Monetary Fund and the European Commission. The ECB also said it “reaffirms its commitment to provide liquidity as needed within the existing rules.”
It will be interesting to watch the overnight market to see if the pressure on the downside remains intact.
Support for the EUR is at 1.2860, then 1.2840. Resistance is at 1.2940, then 1.2980.
More: EURUSD Weekly Forecast.
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