Cyprus Bailout Received With Caution and Optimism

Early Monday, March 25, Cyprus agreed into a deal with the European Union, the European Central Bank, and the International Monetary Fund to close its second largest bank and impose the losses to its uninsured depositors for a return of 10 billion euro or $13 billion.

Cyprus follows Greece, Ireland, and Portugal to receive a bailout deal since the Eurozone debt crisis started. Laiki Bank will eventually shut down and absorbed by Bank of Cyprus. Accounts of more than 100,000 euro will be hit with losses as well as foreign depositors. Accounts with less than 100,000 euro will be insured. European Central Bank will provide funding to Cypriot banks.

The stock market reacted with a strong rally and the euro climbed up above the $1.30 mark. The investors remained cautious but optimistic. There was also a sign of relief as Futures S&P 500, Dow Jones, and Nasdaq 100 were up 0.3, 0.4, and 0.6 respectively.

The positive sentiment rippled through Japan’s Nikkei 225 index with 1.7 percent surge; South Korea’s Kospi up by 1.3 percent; Hong Kong rose to 0.6 percent while Shanghai Composite Index was downby 0.1 percent. Energy markets are also optimistic with the New York rate up by $1.78 at $96.48 per barrel.

The Cyprus bailout were received with mixed reaction from other European capitals.

Germans were relieved and reassured Cyprus. Russia’s Prime Minister, Dmitri A. Medvedev was outraged that wealthy Russians will be inflicted with the losses due to provisions of a bank tax.

On the other hand, Russian President, Vladimir V. Putin, lead his government to reopen negotiations to restructure a 2.5 billion euro or $3.2 billion loan to Cypriots in 2011. Greeks stated that the deal was “painful” but necessary.

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