European markets stumble following Cyprus bailout deal
Cyprus’ bailout plans spur weekend bank run, negotiations begin over first international arms regulations, and China criticizes U.S. anti-missile plan. Today is Monday, March 18, and this is the World Wrap, brought to you by @dwbronner and @clarerrrr.
A stock exchange board is pictured behind a trader at Madrid’s Bourse, March 18, 2013. The surprise decision by euro zone leaders to part-fund a bailout of Cyprus by taxing bank deposits sent shockwaves through financial markets on Monday, with shares and the bonds of struggling euro zone governments tumbling. REUTERS/Javier Barbancho
Controversial Cyprus tax plan causes market scare. On Tuesday, Cypriot ministers will vote on a one-off tax on bank accounts as part of a $13 billion bailout. The tax would weigh heavily on depositors’ savings, but could be a necessary step toward saving the country from bankruptcy. Markets tumbled after policy makers announced the tax this weekend:
Residents on the island emptied cash machines to get their funds over the weekend. The move also unnerved depositors in the euro zone’s weaker economies. Investors feared a precedent that could reignite market turmoil that the European Central Bank has calmed in recent months with its pledge to do whatever it takes to save the euro. The euro fell before tempering losses. European stocks did similarly, dropping two percent before more than halving losses.
The levy may be revised to include a tax-free threshold for smaller deposits. Russian President Vladimir Putin said the tax sets a dangerous precedent. Russia is considering extending a 2.5 billion euro loan to the island, but has said that Cyprus’ failure to reach out to Russia before making their bailout decision might affect the offer. According to Moody’s, Russian banks have $12 billion deposits in Cypriot banks, and Russian corporations another $19 billion. Try your hand at a bailout plan with this calculator from Reuters.
World leaders meet to discuss first-ever global arms treaty. Today, representatives from approximately 150 countries meet at the United Nations to begin negotiations on an international treaty to regulate the $70 billion global arms trade. The treaty outlines standards on the international exchange of conventional weapons, including naval ships, attack helicopters, tanks and firearms. It also requires countries to review contracts to ensure that transferred arms are not used in human rights abuses, do not violate embargoes and are not illegally diverted. If passed, the treaty will require ratification by participating countries. U.S. Secretary of State John Kerry conditionally supported the treaty, but said that limits on American citizens’ Second Amendment rights would be unacceptable. The National Rifle Association opposes the treaty, and the group’s lobbying power raises concerns that the U.S. will not approve the draft in its current form. Delegates would consider moving forward without U.S. approval:
Diplomats say that if the treaty conference fails to reach the required consensus because the United States, Russia or another major arms producer opposes it, nations can still put the draft treaty to a vote in the U.N. General Assembly. The U.S. traditionally has an allergy to treaties,” a European diplomat told Reuters. “It might be better to have a good treaty without the U.S. and hope they come around later.”
China disapproves of U.S. plans to expand anti-missile defense systems. Chinese Foreign Ministry spokesman Hong Lei said in a daily news briefing on Monday that the United States’ decision to increase missile defense in response to North Korea’s nuclear threats “will intensify antagonism.” He advised the U.S. to move forward with “prudence,” and added that diplomacy is the best way to react to North Korea’s heightened provocations. Most recently, North Korea threatened a preemptive nuclear strike against the United States in response to expanded sanctions.This is not the first time China has voiced misgivings about American nuclear policy:
China has expressed unease at previous U.S. plans for missile defense systems, as well as sales of such systems to Taiwan and Japan, viewing it as part of an attempt to “encircle” and contain China despite U.S. efforts to ease Chinese fears.
Secretary of Defense Chuck Hagel announced on Friday that the U.S. plans to add 14 anti-missile receptors in Alaska, marking a reversal of a 2010 decision to curb the missile system at 30 interceptors.
Nota Bene: Women who drink are becoming a highly marketable demographic in conservative India.
Europe’s hair-trigger economy - Former U.S. Treasury Secretary Lawrence H. Summers warns that Europe’s not yet out of the woods. (Reuters)
Rotten Apple? - “Strange how a bunch of Chinese celebrities all decided to dislike Apple at 8:20 p.m.” (Fast Company)
Escape artists - Two Canadian prisoners attempted to escape by climbing a rope to a waiting helicopter. (The Guardian)
Human torches - France has seen a rising number of self-immolations since 2011. (The Atlantic)
Orphans in limbo - In light of a decision to ban American adoptions, Russia should take note of the consequences of Romania’s adoption policy. (Time)
From the File: