NICOSIA: Banks in Cyprus were set to return to normal trading hours Friday after a relatively calm six-hour opening that saw the launch of strict capital controls to save the bailed-out island from a bank run. The measures, which include a daily withdrawal limit of 300 euros ($385), a ban on cashing cheques and a 1,000-euro ceiling on money being taken abroad by travellers, took effect Thursday as banks opened their doors for the first time in nearly two weeks.
The strict controls — the first of their kind in the eurozone — are aimed at curbing the fallout over Cyprus’s 10-billion-euro rescue by the “troika” of the European Union, European Central Bank and International Monetary Fund. Cypriots largely stayed calm during Thursday’s restricted banking hours, and President Nicos Anastasiades thanked the Mediterranean nation’s people for their “maturity” after they queued patiently for limited cash.
But the country will remain under global scrutiny as the latest litmus test for the viability of the eurozone. Tokyo stocks were flat at the break on Friday, slipping 0.04 per cent, or 4.52 points to 12,331.44, after the Dow Jones Industrial Average and S&P 500 hit new highs Thursday. The euro also recovered against the dollar.
Cyprus’s rescue package, agreed on Monday, is the first to impose a levy on bank deposits over a certain amount, and Cyprus is the first bailed-out eurozone nation to impose curbs on the movement of money. Queues of people were waiting when bank doors opened Thursday for the first time since March 16, but the lines had vanished when they closed six hours later and security guards at most branches had little to do.
A number of customers were even making deposits. Unemployed electrician Philippos Philippou entered his bank — a branch of Laiki, which will be wound up under the terms of the bailout — fretting that it would be a “very bad day” with “swearing and a lot of anger”. But he came out smiling. “There is confidence; everything was fine,” he told AFP.
Officials earlier said the capital controls were needed to prevent further damage to the fragile economy, which relies on a banking sector bloated with Russian money. But after the banks reopened, Anastasiades, who was elected only one month ago, gave “sincere thanks and deep appreciation” to Cypriots for not panicking at a “critical time”.
A presidential aide said Anastasiades had decided to cut his own salary by 25 per cent, while cabinet members would take a 20 per cent reduction. The cabinet has also appointed three ex-supreme court judges to probe the meltdown, presidential undersecretary Constantinos Petrides said. The threat of years of hardship 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!” Foreign Minister Ioannis Kasoulides said Thursday the restrictions could be lifted within a month if things continue to go well.
However, he warned that a forecast in December that GDP would contract by 3.2 per cent in 2013, would “definitely be much higher than this”. Cyprus must raise 5.8 billion euros to qualify for the full 10-billion-euro loan. Depositors with more than 100,000 euros in the top two banks — Bank of Cyprus (BoC) and Laiki or “Popular Bank” — face losing much of their money.
Laiki will effectively be wound up and absorbed by the bigger bank. Fitch Ratings agency downgraded Bank of Cyprus and Laiki’s mortgage-covered bonds from B+ to B Thursday, citing uncertainty surrounding the recapitalisation terms of BoC and the transfer of Laiki’s cover assets and liabilities to it.
The Dow Jones Industrial Average and the S&P 500 hit new highs Thursday, closing out a record quarter for Wall Street. The contrast with Europe has led some analysts to speak of a “decoupling” of the US and EU.