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 in ‘superhuman effort’ to reopen banks
Comment by central bank governor Panicos Demetriades come as hundreds of angry bank workers and thousands of students demonstrate against the terms of the EU-IMF rescue package
Cyprus warned that “superhuman” efforts were needed to reopen its banks by Thursday as protests and uncertainty about the island’s top lender showed that its huge bailout had not ended its troubles.
The comment by central bank governor Panicos Demetriades on Tuesday came as hundreds of angry bank workers demonstrated outside his office and thousands of students rallied against the terms of the EU-IMF rescue package.
Banks were shut for an 11th day, leaving homes and businesses on the Mediterranean island short of cash – and there were growing doubts about whether the banks would be ready in time for the promised deadline of Thursday.
Demetriades said the delay in reopening them was to fully install capital controls that would prevent depositors from draining their accounts, and the need to strengthen Bank of Cyprus, the number one lender.
“A superhuman effort is being made for the banks to open on Thursday,” he said. “Each day the banking system is closed, people’s trust diminishes and they want to get their money out, so we are obliged to impose restrictions.”
President Nicos Anastasiades secured the 10-billion-euro (US$13-billion) bailout in Brussels early Monday, just hours before Cyprus faced bankruptcy and a possible exit from the euro.
Most European stocks and the euro rallied on Tuesday after a sharp fall the previous day when remarks by Eurogroup chief Jeroen Dijsselbloem led markets to speculate that the bailout was a model for other struggling members.
But the deal has not ended the woes of Cypriots who fear for their jobs and a future darkened by austerity.
The sense of uncertainty deepened Tuesday when Bank of Cyprus chairman Andreas Artemis suddenly tendered his resignation due to concerns about the impact of the bailout, although the board of directors later rejected it.
Hundreds of staff at the bank also flooded into its headquarters in Nicosia after it was announced that an administrator had been appointed to oversee its restructuring under the bailout, leading to them to fear for their jobs.
Chief executive Yiannis Kypri addressed them in a bid to reassure them about their jobs – but they then marched on to the central bank building to call for the resignation of governor Demetriades.
“We don’t know if the bank will be closed or if we will have work ... we have to demonstrate to show that we don’t want others to decide for our lives,” said Andreas Costa, a 53-year-old BoC employee.
‘They want to take all our money from us’
Earlier around 2,000 students marched on the presidential palace in response to an appeal on Facebook, to express their worries about a bailout they fear will drain away savings intended for their studies.
“The Europeans, the Eurogroup, the Germans ... they want to take all our money from us,” schoolgirl Evan Ieridou, 17 said at the student protest.
Finance Minister Michalis Sarris meanwhile warned that the “haircut” that will be imposed on large deposits at the Bank of Cyprus could be greater than expected at 40 per cent.
The financial controls should be lifted in “a matter of weeks”, Sarris said.
The agreement struck early on Monday will also see second largest lender Laiki wound up, with the parts of it that are salvaged being merged into Bank of Cyprus, dealing a major blow to jobs and the availability of credit to consumers and small businesses.
Fitch ratings agency downgraded the two banks to default category and placed the island’s third biggest lender, Hellenic Bank, on negative watch.
The Cyprus bailout has stirred up fears among other struggling economies following Dijsselbloem’s comments and stocks in Greece and Spain, two other indebted euro-zone economies, both fell sharply on Tuesday.
Greek Finance Minister Yannis Stournaras insisted on Tuesday that the Cyprus deal only applied to the island country.
Many on the island feel that they have been made a scapegoat with the unprecedented demand by eurozone creditors for bank depositors to pay so much of the cost of the bailout.
Wealthy euro-zone governments like Germany had refused to bail out Cyprus unless it agreed to put an end to what they regarded as a “casino” financial sector dependent on hot money from countries like Russia.
Chancellor Angela Merkel has become a particular butt for demonstrators’ anger in Cyprus, as in Greece last year,
Finnish Prime Minister Jyrki Katainen called for euro-zone taxpayers to be spared from bailing out troubled banks in the future, insisting that shareholders and investors ought to foot the bill instead.
But French President Francois Hollande said the safety of bank deposits up to 100,000 euros (US$129,000), called into question by a first Cyprus bailout plan rejected by parliament earlier this month, should be sacrosanct in the European Union.
“The guarantee of deposits should be an absolute, irrevocable principle,” he said.