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Financial focus

• Cyprus vote on bank levy today
• Analysts warn bailout could spark end of Eurozone
• Bond sales test Eurozone confidence this week
• Russian deposits to take hit, but Moscow may lend more
• Euro drops on ‘Cyprus savings tax’
• Asian markets fall overnight on fresh Eurozone worries
• Europe stocks set to fall by over 2% today
• US oil falls from three-week high
• Commodities fall as Cyprus rekindles EU debt crisis

CYPRIOT President Nicos Anastasiades was last night locked in
eleventh hour talks with Brussels in a bid to soften a radical plan to
impose a tax on Cypriot savings accounts, as part of a deal to fund a
€10bn EU bailout. Politicians are trying to limit the impact on savers
with less than €100k – who thought they were covered by the EU’s
deposit guarantee scheme. They are being taxed 6.7% of their
deposits, while those with above €100k would lose 9.9%. The lower
figure may now be cut to three per cent or even zero, with those that
hold over €100k losing up to 15% of their cash to make up the
difference. Almost €6bn will be taken from savings accounts under the
plan, with depositors unable to remove cash over the long bank
holiday weekend, which has been extended through tomorrow to avoid
runs on the island’s banks.

The EU’s latest bailout plan will increase uncertainty in Cyprus and
fails to solve the country’s long-term problems, analysts warned
yesterday, fearing the decision to raid savings will undermine
confidence and could even spark a break up of the Eurozone as a
whole. “The parties involved, the EU and IMF in particular, have in
essence shown no concern about bank runs caused by the potential
hit to depositors,” said Dan Greenhaus, Chief Strategist at BTIG.
The effect of the Cypriot bailout terms on Eurozone confidence will be
tested tomorrow as Greece attempts to sell €1bn of three-month
Treasury bills, and Spain auctions bills on the same day, followed by a
bond sale on March 21st. Portugal sells three and 18-month paper on March 20th, while Italy offers bonds on March 25th.
Politicians in countries like Germany are thought to be particularly keen to hit the biggest depositors in Cyprus the
hardest in part because of its reputation as a haven for money launderers. More than one-third of deposits are foreignowned,
with Russians making up one of the largest contingents. The majority of Russian deposits are thought to be
above €100k while domestic savers are largely below it, meaning foreigners would bear the brunt. “Part of the agreement
involves steps to improve the anti-money laundering framework” a Barclays analyst said. But Russia’s government has
been generous towards Cyprus in the past, lending €2.5bn to the troubled government in 2011. It is now considering
easing the terms on those loans, and potentially lending more to ease the country’s woes.

Overnight, Asian stocks headed for the biggest decline in eight months, led by raw-material producers, amid concern an
unprecedented levy on bank deposits in Cyprus will plunge Europe back into crisis and that China will increase efforts to
curb property prices. Futures on the Standard & Poor’s 500 Index also dropped by over 1%, which may indicate a retreat
in the US markets later in the day.

Today, European shares are expected to fall sharply, with Cyprus’ plan to tax depositors rattling investors who are
concerned that the move, if passed, could set a precedent for future Eurozone bailouts. Following the break with
previous EU practice that depositors’ savings are sacrosanct, analysts believe that Europe’s stocks may fall by more than
2% today.

The euro fell 1.3% against the dollar and reached a three-week low against the yen, after Eurozone finance ministers
agreed to an unprecedented tax on Cypriot bank deposits as part of a rescue plan for the country.

West Texas Intermediate oil fell from the highest level in three weeks as an unprecedented bank levy by Cyprus on bank
savings threatened to worsen Europe’s debt crisis.

Commodities fell as Cyprus rekindled concern that Europe’s debt crisis may deepen, with copper dropping by the most in
five months, pacing declines in industrial metals and oil. Rubber and wheat also slid while gold rose to a two-week high.

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