For now, the Cyprus crisis is not spreading market panic to other indebted countries such as Italy or Spain. That's because the ECB has pledged to do "whatever it takes" to save the euro, including buying the government bonds of troubled countries to keep their borrowing rates down. The backstop has done much to contain the eurozone crisis since last summer.
But even if Cyprus finds a deal by Monday, the impact of its crisis may be felt across Europe for a while to come. The mere fact that Cyprus considered confiscating bank deposits below the insured limit of 100,000 euros may have unsettled account holders in other financially troubled eurozone countries. The question is, whether depositors will be quicker to run for the ATM in a future crisis now that the insurance promise has been revealed as less than sacrosanct.
The possibility that bank deposits might be taxed has particularly angered Russia, whose citizens hold as much as 20 billion euros ($26 billion) in Cypriot banks. Russian President Vladimir Putin called it "unjust, unprofessional and dangerous." Still, middle-class Russians don't have their money in Cyprus, so the effects will be limited to a class that can largely afford to shoulder the burden. They may move their money elsewhere, but Russian officials do not expect them to bring the money back home.
On the other hand, Russian banks, which have about $40 billion worth of loans to Cyprus-based companies on their books, stand to lose significant amounts if Cyprus' banking system breaks down and money isn't allowed to leave the country. The cost could rise to almost 2 percent of Russia's gross domestic product.
For the moment, global markets appear largely unconcerned about Cyprus.
This could be because Cyprus is tiny. It could be because they are confident an 11th-hour deal is assured. Or that there's so much cash floating around markets after several rounds of monetary easing by the U.S. Federal Reserve and other central banks that investors are impervious to a potential banking collapse in just one small country.
Since Cyprus has a highly connected, international banking system, if it collapses, companies around the world will suffer. They will lose their savings and fail to be paid on outstanding contracts. But the entire banking sector is relatively small, so the direct effects from a collapse in Cyprus shouldn't be dramatic around the world.
The global impact depends largely on how the eurozone is affected. If European leaders contain the damage to Cyprus, the world probably shrugs. If Cyprus exits the euro or its banking collapse roils Greece or Spanish savers start demanding their money back, then the world will sit up and take notice. Taken as a whole, the EU is the world's largest economy. When it falters, everyone does.
McHugh contributed from Frankfurt, Germany. Associated Press writer Nataliya Vasilyeva contributed from Moscow.
DiLorenzo can be reached at —http://twitter.com/sdilorenzo
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