Cyprus has suspended their stock exchange for today and tomorrow. Our reporter Yogesh Chandarana on what the unfolding crisis could mean for markets:
The full market reaction will only unfold after Cyprus’s parliamentary vote on the proposals later today.
Cyprus cannot afford to bail out its banks alone. Its current debt-to-GDP ratio sits at 86 per cent, and a bailout would push that figure to a likely unsustainable 145 per cent. This would introduce the possibility of “haircuts” on Cypriot sovereign debt, further damaging the banking sector.
If the vote fails to pass, there is the risk of a market backlash; it will raise the chance of a disorderly bankruptcy of Cyprus and its banks. Then we may see a more meaningful move in the euro, European bond yields, and a further hammering of European banks.