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The surprise decision by eurozone leaders to part-fund a bailout of Cyprus by taxing bank deposits sent shockwaves through financial markets on Monday.
Shares tumbling as investors sold them to transfer cash into so-called safe-haven assets such as gold and German government bonds.
Frankfurt trader Robert Halver warned of fear contagion to places like Spain and Italy, saying: “The bank crisis is back again. If we look at the Spanish and Italian banks this morning, their shares were down significantly because there is the fear that there will be a run on the banks; that what is happening in Cyprus could also happen in Spain or Italy. It is vital that the small-time savers hold their nerve.”
Milan and Madrid were the biggest losers, both down two percent at mid afternoon, while the amount of Russian money in Cypriot banks .led to a sell off of shares in Moscow.
The interest that Italy and Spain had to pay to sell government bonds jumped sharply.
The cost of insuring against a government default in the eurozone’s southern rim also rose.