Answered: Why Markets Hit Again On Cyprus Worries
The markets are taking a hit again today on more worries out of Cyprus. This tiny country is turning out to be a possible catalyst for contagion in the Euro Zone. Plenty of new drama is surfacing. The SPDR S&P 500 ETF Trust (NYSEARCA:SPY) is trading at $154.32, -0.65 (-0.42%).
There was a scheduled vote today on whether or not to impose the tax on depositors in Cyprus. The automatic tax on all funds within banks in Cyprus sent the markets reeling yesterday. However, today, even if the vote did not pass, disaster could be around the corner.
If the vote does not pass, Cyprus may have to exit the Euro Zone as they default on their loans. Should this happen, it could spread quickly to Greece, Italy, Spain and Portugal.
In other words, if the vote passes and a tax is imposed on all depositors, it creates a run on the banks, if it is not passed, Cyprus defaults exit the EU. Either way, contagion is a very likely outcome across Europe.