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EUROZONE

Markets dip after Cyprus ‘template’ comment

Spain's markets fell on Monday afternoon after Eurogroup boss Jeroen Dijsselbloem said the Cyprus bailout agreement was a "template" for the rest of Europe.

Markets dip after Cyprus 'template' comment
Eurogroup boss and Dutch Finance Minister Jeroen Dijsselbloem (centre) after a Eurogroup Council meeting in Brussels on Monday. Photo: John Thys/AFP

Spain's markets began trading strongly on Monday after news of the last-minute €10-billion Cyprus bailout agreement.

After a ten-hour meeting that ended in the early hours of Monday morning, Europe's finance ministers agreed  to bail out the island's economy if it renounced its position as a fiscal paradise.

Bank account holders in Cyprus with less than €100,000 in savings will now see their deposits guaranteed while others holding more than this amount can expect a serious hole to open up in their bank account.

Markets climbed on the back of the announcement with Spain's key IBEX 35 index climbing nearly 1.5 percent in morning trading.

The upswing was short lived, however, with markets doing an about turn after Eurogroup head Jeroen Dijsselbloem commented that the Cyprus rescue should be seen as "a template for the rest of the eurozone".

These comments saw the Ibex 35 index down 2.5 percent by 4.30pm on Monday.

At its peak on Monday, Spain's key ibex index hit a high of 8,461 points. At 4.35pm, that figure was 8.105,50.

The euro, meanwhile, dropped 1 percent against the dollar to be valued at $1.2874.

The first tranche of the European bailout for Cyprus will be delivered in May.

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EUROZONE

Spanish prices higher amid EU deflation fears

Spain posted on Friday a sluggish rise in consumer prices in January as the spectre of deflation hung over the eurozone economies.

Spanish prices higher amid EU deflation fears
Consumer prices rose by just 0.3 percent in Spain over the year to January, the National Statistics Institute said. Photo: fotoluiscmg/Flickr

Consumer prices rose by just 0.3 percent in Spain over the year to January, the National Statistics Institute said.

Low prices can be good news for consumers.

But a broad, sustained decline in prices can lead shoppers and businesses to postpone purchases as they wait for prices to tumble even further.

The result can push an economy into a downward spiral.

International Monetary Fund head Christine Lagarde warned last month that while growth in the global economy was picking up, there were "rising risks" of the "ogre" of deflation, or falling prices.

European Central Bank chief Mario Draghi last week said the eurozone was not in a deflationary period but that protracted low inflation "is a risk by itself and warrants close monitoring by the ECB".

The European Central Bank targets an inflation rate of about 2.0 percent in the eurozone.

The inflation rate in Spain, which crawled out of a two-year economic downturn in the second half of 2013, was well below the eurozone average of 0.7 percent in January.

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