Europe Weighs Cyprus’s Fate After Lawmakers Reject Deal

European policy makers are weighing how far to push Cyprus after lawmakers in the Mediterranean nation rejected an unprecedented levy on bank deposits, throwing into limbo a rescue package designed to keep it in the euro.

Stocks and the euro gained as investors speculated that the European Central Bank, whose Governing Council meets today in Frankfurt, will continue to support the country’s banks. Luxembourg Finance Minister Luc Frieden called for the 17 euro finance ministers to reconvene as soon as possible to forge a new bailout.

“This is not a good result -- neither for Cyprus, nor for the euro zone, and we have to look together for alternatives to the negotiated package,” Frieden said yesterday in a phone interview from Frankfurt. “What matters now is to undertake all necessary measures to ensure the stability of the euro zone.”

Cyprus’s rejection came after days of recrimination sparked by European plans to force depositors in the country to shoulder part of the bailout with their savings. Cypriot President Nicos Anastasiades returned from marathon talks in Brussels on March 16 saying the alternative would be the “indescribable misery” of the ECB cutting off funding to one of its banks.

Read more: Europe Weighs Cyprus’s Fate After Lawmakers Reject Deal - Bloomberg

As Europe’s Currency Crisis Fades, Growth Worsens - by Carol Matlack

Maybe, just maybe, the worst of the euro crisis is over. Business and consumer confidence is rising across the Continent, sovereign bond yields are falling, and capital flight from its weakest economies is easing. Talk of an imminent breakup of the currency union has all but disappeared. Even Greece, whose debt hemorrhage plunged the euro zone into crisis three years ago, is starting to meet deficit targets agreed to with its lenders.

“We are now back in a normal situation from a financial viewpoint,” European Central Bank President Mario Draghi said at a Jan. 10 news conference. “We spoke a lot about contagion when things go poorly, but I believe there is a positive contagion when things go well. That’s also what is in play now.” His comments lifted the euro to $1.32, its biggest gain in four months against the dollar.

But the indicators on Europe’s real economy are, if anything, worse than ever. Factory and services output contracted in December for a 17th consecutive month, and unemployment is at 11.8 percent and rising in many countries. The ECB lowered its growth forecast last month and now predicts the euro-zone economy will shrink 0.3 percent this year. “The worst is over, but what we still have to do is difficult,” says Luxembourg Prime Minister Jean-Claude Juncker.

Read more: As Europe’s Currency Crisis Fades, Growth Worsens - Businessweek