Barclays: Cyprus’ economic problems unlikely to spread through southern Europe

210px-Barclays_logo.svgAs concern about the financial conditions in Cyprus grows, Barclays Capital said last weekend that the nation’s economic woes are unlikely to spread to southern Europe.

Over the weekend, the European Union offered Cyprus a $13 billion aid package. Cyprus’ central bank ordered its banks to close in order to avoid a run on deposits, and it plans to impose a 9.9 percent tax on deposit accounts of more than $129,583, while a smaller tax would be applied to smaller deposit accounts, Forbes reports.

Many traders have expressed concern that a tax in Cyprus will influence other countries to implement similar measures, causing panic and a run on banks.

The bailout program, the tax of which would amount to just over half of the bailout fund, will include the sharing of bank liabilities through the “upfront one-off stability levy applicable to both resident and non-resident depositors,” according to Forbes.

Barclays said that Germany favors the agreement because the solution is nearly fully financed. Christine Lagarde, the managing director of the International Monetary Fund, said that the IMF may contribute another $1.3 billion.

“We consider that the scope of potential contagion to other peripheral countries in terms of deposit outflows and sovereign debt is considerably more limited than if such a decision would have been taken in previous programs,” Barclays analysts said, adding that the likelihood of a bank run in other nations was limited, Forbes reports.

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