Cyprus banks re-open under tight controls

2013-03-29 11:02
People are served in a branch of Bank of Cyprus in Nicosia. (Petros Karadjias, AP)

People are served in a branch of Bank of Cyprus in Nicosia. (Petros Karadjias, AP)

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Nicosia - Banks in Cyprus resumed normal trading hours on Friday a day after a near two-week lockdown ended, but Cypriots face a month of cash curbs intended to prevent a run on deposits after an EU-led bailout.

Small queues of people built up outside banks on the east Mediterranean island as their doors re-opened for a second day under draconian capital controls which include a daily withdrawal limit of €300.

The banks opened at 08:30 and will close at 13:00.

The controls, the first of their kind in the eurozone, are designed to stop depositors draining Cyprus's coffers following the €10bn rescue package agreed on Monday in Brussels.

The bailout involves a "haircut" or levy on big deposits, and has made other eurozone strugglers fear they could face similar terms from the "troika" of the European Union, European Central Bank and International Monetary Fund.

Cypriots largely stayed calm on Thursday when the banks reopened after a 12-day shutdown and President Nicos Anastasiades thanked them for their "maturity" after they queued patiently for limited cash.

Uncomfortable questions

The controls were officially imposed on Wednesday for one week, but Foreign Minister Ioannis Kasoulides said late on Thursday they could be "lifted within a month if everything goes as well as it did" when the banks re-opened.

The controls also include a ban on cashing cheques and a €1 000 ceiling on money being taken abroad by travellers.

Speaking at a joint news conference with visiting Swedish Foreign Minister Carl Bildt, he warned an economic contraction in 2013 would "definitely be much higher" than the 3.2% predicted in December.

Bildt on Friday raised uncomfortable questions the way Cyprus and the EU handled the crisis.

"The question for me here in Cyprus is why one allowed the situation to go on for so long. And then dumped it on new President within days," the Swede tweeted.

"That’s also a question for the relevant EU authorities. They pumped money into unsustainable situation. Could have pulled the plug earlier."

President cuts salary

Conservative Anastasiades only took office a month ago. His communist predecessor Demetris Christofias first sought a bailout in June but apparently balked at the tough terms proposed by the troika.

The Cypriot cabinet on Thursday appointed a panel of former supreme court judges to investigate the meltdown, including whether there was any criminal activity.

Anastasiades meanwhile said he had decided to cut his own salary by 25%.

The threat of years of hardship because of the bailout - Cyprus must raise €5.8bn to qualify for the full €10bn loan - has sparked protests.

On Thursday night more than 100 members of the right-wing nationalist ELAM party demonstrated in central Nicosia against the bailout measures, chanting slogans such as "Troika, out!" and "This island is Greek!"

Depositors with more than €100 000 in the top two banks - Bank of Cyprus and Laiki or Popular Bank - face losing much of their money.

Facing depression

Laiki will effectively be wound up and absorbed by the bigger lender.

Cyprus remains under global scrutiny as the latest test of the viability of the eurozone.

Japanese shares ended higher at the end of quiet regional trade on Friday but the euro edged lower.

Fitch Ratings agency downgraded Bank of Cyprus and Laiki's mortgage-covered bonds to B from B+ on Thursday.

An official at a top grouping of banks said there was still a real chance Cyprus could exit the eurozone.

"This is the first case where you can see some kind of exit as a very distinct possibility," said Philip Suttle, deputy managing director of the Institute of International Finance, which represents some 450 banks worldwide.

"Cyprus is suffering all the costs associated... with the euro and not the benefits," he added, warning the island was facing a "depression".

Read more on:    nicos anastasiades  |  cyprus  |  economy

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