Agency warns of knock-on effect
TAXING Cypriot savers is a significant step towards stripping safeguards from deposits in European banks, it has been warned.
Ratings agency Moody's said the decision to target depositors is a major departure from past bailouts and warned that it may have negative implications for European bank ratings.
"The losses are credit negative, not only for Cypriot bank creditors, but also for other European bank creditors since this is a significant step toward limiting or removing systemic support for bank creditors across Europe," Moody's said.
"Even if the risks of contagion in this case are limited somewhat by the fact that the banking system's problems – exposure to the Greek economy and to domestic real estate – are clearly limited to Cyprus, the decision to impose losses on depositors signals euro area policymakers' willingness to risk triggering wider financial market disruptions in pursuit of other policy goals," the agency said.
The comments come as separate credit ratings agency Standard & Poor's has warned of a high risk that Spain, Italy, Portugal and France will not be able to push through reforms amid fears of mass protests by the unemployed.
The head of the German wing of the ratings agency, Torsten Hinrichs, said the unemployment rate is "socially explosive".