Cyprus reopens banks after bailout
Cypriot banks reopened Thursday morning with tight controls imposed on transactions to prevent a run on deposits after the government was forced to accept a stringent EU rescue package to prevent the country from going bankrupt.
Authorities said the emergency rules imposed to limit withdrawals and prevent a bank run will be temporary, but economists say they will be difficult to lift as long as the economy is in crisis.
But he added: “I’m worried about the poor kids working in the cashiers today, because people might vent their anger at them. You can’t predict how people will react after so many days.”
He added: “How can they tell you that you can’t access your own money in the bank? It’s our money, we are entitled to it.”
On Wednesday night, container trucks loaded with cash pulled up inside the compound of the central bank in the capital Nicosia to prepare for the reopening, a Cyprus central bank source said. A helicopter hovered overhead, and police with rifles were stationed around the compound.
As in all countries that use the euro, Cyprus’s central bank supplies cash for its banks from the European Central Bank in Frankfurt. Officials have promised that enough funds will be on hand to meet demand. The ECB did not comment on reports it had sent extra cash to the island.
The island’s central bank will review all commercial transactions over 5,000 euros and scrutinize transactions over 200,000 euros on an individual basis. People leaving Cyprus can take only 1,000 euros with them. An earlier draft of the decree had put the figure at 3,000.
With just 860,000 people, Cyprus has about 68 billion euros in its banks — a vastly outsized financial system that attracted deposits from foreigners as an offshore haven but foundered after investments in neighboring Greece went sour.
Cyprus’s financial difficulties have sent tremors through the already fragile single European currency. The imposition of capital controls has led economists to warn that a second-class “Cyprus euro” could emerge, with funds trapped on the island less valuable than euros that can be freely spent abroad.
Many experts are skeptical. In a Reuters poll of economists this week 30 out of 46 said the controls would last months, while 13 expected they would endure a matter of weeks. Three said they could last years.
“These are permanent controls until the economy recovers.”
Deposits of more than 100,000 euros at both banks, too big to enjoy a state guarantee, will be frozen, and some of those funds will be exchanged for shares issued by the banks to recapitalize them.
European leaders said the bailout deal averted a chaotic national bankruptcy that might have forced Cyprus out of the euro. Many Cypriots say the deal was foisted upon them by Cyprus’s partners in the 17-nation euro zone, and some have taken to the streets to vent their frustration.
On Wednesday, some 2,500 people rallied outside the offices of conservative President Nicos Anastasiades, waving banners and flags. They chanted: “I’ll pay nothing; I owe nothing.”
For now, residents said they are confused and worried by the capital controls, and wonder how they will affect daily life.
A 42-year-old Romanian hotel maid, who gave her name as Maria, said she was worried she would not be able to cash her pay cheque due Friday. The hotel, she said, was unable to pay staff in cash because most guests paid by credit card.
“What shall I do?” she asked. “Hold up the cheque and look at it?”