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European stock markets plunge on Cyprus deal

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Traders at work at the Frankfurt Stock Exchange

European stock markets have plunged after Cyprus struck a 10-billion-euro ($13 billion) bailout deal to save the country from bankruptcy.

The stocks fell on Monday afternoon after Dutch Finance Minister Jeroen Dijsselbloem, who heads the Eurogroup of eurozone finance ministers, said that the Cyprus model, which includes a heavy tax on bank deposits, could form a template in any future bailout in the eurozone region.

“Taking away the risk from the financial sector and taking it on to the public shoulders is not the right approach,” Dijsselbloem said hours after the deal was reached between Cyprus and the “troika” of the European Central Bank, the International Monetary Fund, and the European Union.

“If there is a risk in a bank, our first question should be ‘Okay, what are you in the bank going to do about that? What can you do to recapitalize yourself?’. If the bank can’t do it, then we’ll talk to the shareholders and the bondholders, we’ll ask them to contribute in recapitalizing the bank, and if necessary the uninsured deposit holders,” he said.

In London, FTSE 100 index of leading companies ended the day down 0.22 percent to 6,378.38 points.

In Frankfurt, the DAX 30 dropped 0.51 percent to 7,870.90 points.

The Madrid Stock Exchange General Index turned to the red, down 2.50 percent, and the Milan Stock Exchange plunged 2.27 percent.

Meanwhile, the euro fell to its lowest level on Monday since November to $1.2830.

Some economic experts say that the bailout package would save Cyprus from bankruptcy and possibly guarantee its future in the 17-nation eurozone. However, Cypriots have held many demonstrations against the bailout deal, which they say can push the cash-strapped island nation into recession.

Nicholas Papadopolous, the chairman of the Cypriot parliament’s finance committee, said the bailout deal made “no economic sense”.

“We are heading for a deep recession, high unemployment. They wanted to send a message that the Cypriot economy ought to be destroyed, and they’ve succeeded in a large part, they’ve destroyed our banking sector,” he said on Monday.


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