Euro and shares slide over fears that Cyprus could trigger bank runs in other eurozone countries
The euro dived and shares suffered sharp losses after a controversial bailout package for Cyprus threatened to trigger fresh turmoil in the eurozone.
Eurozone finance ministers demanded on Sunday that Cypriots pay up to 10% of their bank deposits in exchange for a €10bn (£8.5bn) bailout, prompting panic across the island as people rushed to cash machines to withdraw their savings.
Traders are concerned this could set a dangerous precedent that could trigger bank runs in other eurozone countries.
Mohamed El-Erian, the chief executive of Pimco, the world's largest bond investor, said: "In Europe, [the Cyprus bailout] could well undermine the recent tranquil behaviour of depositors and creditors in other vulnerable European economies – in particular Greece, Italy, Portugal and Spain."
The euro slid as low as $1.2888 in early trade, its lowest point since December. One euro is now worth 86p.
In the stock markets, the FTSE 100 tumbled 100 points in the opening minutes of trading, to 6390, a fall of 1.5%. France's main share index, the CAC 40, dropped 2.1%. Spain's IBEX was down 2.9%, while the Italian FTSE MIB sunk 2.8%.
Gold, which is seen as a safe haven in troubled times, rose above $1,600 for the first time in more than two weeks.
Despite assurances from European officials that Cyprus is 'exceptional' and the measures are 'unique', El-Erian said the Cyprus bailout has driven investors to demand higher returns to hold risky assets.
In the debt markets, the yield on Spain's 10-year government bond – effectively the interest rate – jumped 17 basis points to 5.098%. Yields on 10-year Italian debt rose 13bp to 4.736%.
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