Cyprus became the latest euro zone domino to teeter in 2012 just when the worst of the crisis appeared to be over. In March 2013, a compromise rescue plan backed by euro zone finance ministers called for Cyprus to wind down one largely state-owned bank, Popular Bank. The raid on Popular Bank was intended to raise most of the 5.8 billion euros that Cyprus was required to raise as part of the bailout.
Cyprus to reopen banks, impose capital controls
Banks in Cyprus open again but will limit withdrawals, ban cheques and curb the use of Cypriot credit cards abroad
Reuters in Nicosia
Cyprus reopens its banks on Thursday while limiting withdrawals, banning cheques and curbing the use of Cypriot credit cards abroad, among measures imposed to avert a bank run after it agreed a tough rescue deal with international lenders.
The Central Bank said banks would open their doors at midday (6pm Hong Kong time) on Thursday after nearly two weeks when Cypriots could only get cash through limited ATM withdrawals.
A central bank official said Cypriots would be allowed to withdraw no more than 300 euros (US$380) a day.
Yiangos Demetriou, head of internal audit at the Central Bank, said on state television that the controls would allow unlimited use of credit cards within Cyprus, but set a limit of 5,000 euros per month abroad. He said the measures would last four days but could be reviewed.
Other details of the controls had yet to be officially announced by late Wednesday. According to a draft of a government decree leaked to Greek newspaper Kathimerini, Cypriots would not be permitted to send money overseas without documentation showing they are paying for imports.
Those travelling abroad could take a maximum of 3,000 euros on each trip, according to the draft. Early withdrawals of funds deposited with banks for a fixed term would be banned. Cypriot officials said the draft published by the newspaper was genuine but not necessarily final.
The European Central Bank delivered extra banknotes to Cypriot banks on Wednesday evening to meet demand, a source familiar with the situation said. The ECB declined to comment.
Finance Minister Michael Sarris has said capital controls will be “within the realms of reason”. But Cypriots, fearing for their savings and angered by the bailout deal struck on Monday in Brussels, are expected to besiege banks.
Under the bailout, Cyprus’s second largest bank will be closed and its guaranteed deposits of up to 100,000 euros transferred to the biggest bank. Deposits of more than 100,000 euros at both banks would be frozen.
Big depositors will lose money, but the authorities say deposits up to 100,000 euros will be protected, a reversal from an earlier plan that would have hit small depositors as well.
Cypriots have taken to the streets of Nicosia in their thousands to protest against a bailout deal that will push their country into an economic slump and cost many their jobs.
Some 2,500 protesters gathered outside the presidential palace on Wednesday, waving banners and flags. They chanted: “I’ll pay nothing; I owe nothing.”
European leaders said the bailout deal averted a chaotic national bankruptcy that might have forced Cyprus out of the euro.
Speaking after meeting government officials, the head of the Cyprus chamber of commerce said: “We have been assured that limitations will not affect transactions within Cyprus at all.”
“Where there will be limitations is on what we spend abroad and also on capital outflows,” Phidias Pelides told reporters.
Critics said the capital controls, which contradict the EU principle of free flow of money and goods, might be hard to give up.
“This is a typical set of exchange control measures, more reminiscent of Latin America or Africa,” said Bob Lyddon, General Secretary of the international banking association IBOS.
“There is no way these will only last seven days,” he said. “These are permanent controls until the economy recovers.