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Stock Futures, World Markets Down After Cyprus Bank Tax

Hemera Technologies/Thinkstock(NEW YORK) -- The stock market could be in for a rude surprise on Monday all because of a banking crisis on the small Mediterranean island nation of Cyprus.

The worry for financial markets is that a bank bailout in Cyprus might lead to a run on money in some other parts of Europe.  That's because Eurozone financial authorities took the highly unusual and unpopular step of taxing people's bank deposits.  That didn't happen during earlier bailouts for Ireland, Spain or Greece.  

The fear in this case is that the tax medicine could be worse than the bank sickness, sparking a new financial crisis in the 17-nation Eurozone, which is a major trading partner for many U.S. businesses.

The decision to raise more than $7.5 billion in taxes on Cypriot depositors -- part of a $13 billion bank bailout by Europe  -- also risks a political crisis. 

In an address to the nation, the new president, Nicos Anastasiades, said if Cyprus' Parliament did not approve the bailout plan there would be a “complete collapse of the banking sector,” with big losses for depositors and businesses.  In those circumstances, he said, Cyprus might have to leave the Eurozone.

Already, U.S. stock futures are down ahead of Monday's opening bell.  European markets are trading lower, while Asian ones closed on a low.

Japan's Nikkei index sank 2.71 percent, Australia’s S&P/ASX 200 tumbled 2.05 percent and Hong Kong’s Hang Seng dropped 2 percent.  China’s Shanghai Composite, meanwhile, lost 1.68 percent, while South Korea's Kospi fell 0.92 percent.

Copyright 2013 ABC News Radio

ABC News Radio