European markets follow Asian shares downward on fears that the plan to bailout Cyprus could trigger an escalation of the eurozone debt crisis.
The EU and IMF want all bank customers to pay a levy in return for a bailout worth 10 billion euros ($13 billion).
London’s 100 share index is 1% lower, while France and Italy are down 2%.
The euro was also affected. Against both the pound and the dollar it lost about 1%, leaving it at 85.7 pence and $1.293 repectively.
Earlier, Japan’s Nikkei 225 index fell 2.7%, while Hong Kong’s Hang Seng and Australia’s ASX 200 dipped 2%.
Banking shares were among the hardest-hit, with Italy’s UniCredit losing almost 5%, Intesa Sanpaolo down 4%. Banco Popolare, which announced a bigger-than-expected annual loss on Friday after the market closed, down almost 5%.
France’s BNP Paribas and Credit Agricole were both down more than 3%.
In Germany, Deutsche Bank was down 3.5% while Commerzbank was 1.5% lower.
Analysts said that investors were divided about whether the developments in Cyprus would affect other bigger eurozone economies, which may also need bailout funds in the future.
Some fear that, if approved, the plan may set a precedent for those countries.
“There will certainly be confusion in Cyprus, and investors looking just at headlines may fret about its case becoming a model,” said Yuji Saito, director of foreign exchange at Credit Agricole in Tokyo.Analysts said the fresh concerns over the fate of some of the eurozone weaker members, triggered by the developments in Cyprus, had resulted in investors looking to ditch relatively riskier assets.
This is the first time the 17-nation eurozone has sanctioned dipping into people’s savings to finance a bailout.
The plan is yet to be finalized, but the news of the deal caused a rush to the cash machines in Cyprus as people tried to withdraw money.
Under the levy, bank customers with less than 100,000 euros would have to pay 6.75%, while those with more than 100,000 euros would pay 9.9%.
However, depositors in Cypriot banks outside the country, including in Greece, are unaffected by the levy.
But the plan is yet to be finalized and Cyprus’s leaders have said they want to ensure protection for small investors.
Meanwhile, an emergency session of the Cypriot parliament has been postponed until later on Monday.
Also, Germany must approve the plan, but is not due to vote until next month.
Following eurozone finance ministers’ negotiations last week, Cyprus became the fifth euro-area country to get a bailout to save its banks, which suffered significant losses because of their exposure to Greek debt.