Cyprus citizens anxious as banks reopen with limits

March 28, 2013

— Anxious Cypriots patiently waited in long lines to get at their accounts on Thursday after banks opened for the first time in nearly two weeks, following an international bailout to save the country’s financial system.

Fearing a run on its banks, the tiny Mediterranean country imposed daily withdrawal limits of 300 euros ($385) for individuals and 5,000 euros for businesses — the first capital controls that any country has applied in the euro zone’s 14-year history.

Financial strains are building on families and businesses, and the recession in Cyprus is likely to deepen. The mood outside banks was calmer than feared. Many people said the withdrawal limits were probably necessary to keep a bad situation from spiraling out of control.

Flower shop owner Christos Papamichael was among about 30 people waiting patiently for bank doors to open at noon Thursday. “Everything has been paralyzed. . . . No one thinks of buying flowers,” he said.

Banks had been shut since March 16 to prevent people from draining their accounts as politicians scrambled to save the country’s stricken financial sector. ATMs were working, but with a limit on daily withdrawals.

An initial plan to seize up to 10 percent of all Cypriot deposits caused an uproar and was scrapped. But to secure 10 billion euros ($12.8 billion) in loans from other euro countries and the International Monetary Fund, Cyprus agreed Monday to wind down its second-largest bank and seize billions from accounts holding more than the insured limit of 100,000 euros ($128,000).

Government and bank officials had feared that up to 10 percent of the country’s deposits could be siphoned off when banks opened Thursday — but that did not appear to happen. Guards from private security firms reinforced police outside some ATMs and banks in the capital, Nicosia. No problems controlling crowds were reported.

The limits on withdrawals and other capital controls are expected to be relaxed gradually. Foreign Minister Ioannis Kasoulides said that, according to central bank estimates, the controls would be fully lifted in a month. Some analysts say it could last longer.

Many Cypriots were left frustrated and confused by the closures and controls and concerned about the effect on their businesses and livelihoods.

“No matter how much information there was, things were changing all the time,” said Costas Kyprianides, a grocery supplier in Nicosia.

For years, the banking sector has been the lifeblood of the Cypriot economy, attracting money from across Europe — and especially Russia — thanks to high interest rates and loose regulation. The country’s deposits ballooned to more than seven times its economic output. But Cypriot banks ran into trouble after taking massive losses on Greek government bonds.

Now, the country’s second-largest bank, Laiki, is to be split up, with its healthy assets being absorbed into the Bank of Cyprus. Savers with more 100,000 euros in either Bank of Cyprus or Laiki will face big losses. At Laiki, those could reach as much as 80 percent of amounts above the 100,000 insured limit; those at Bank of Cyprus are expected to be much lower.

As part of the country’s capital controls, no checks can be cashed, although they can be deposited. Anyone leaving the country, whether Cypriot or a visitor, can take only up to 1,000 euros with them in cash.

Some analysts are concerned that, if kept in place long, Cyprus’s measures will go against the fundamental principle of the single currency: free and easy movement of money around the euro zone’s 17 members.

In a statement Thursday, the European Commission said that “the free movement of capital should be reinstated as soon as possible.”

— Associated Press

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