Draconian controls as Cyprus banks reopen

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Cyprus confirmed banks would reopen on Thursday after a nearly two-week lockdown on the bailed-out country, but only under draconian capital controls, the first of their kind in the eurozone.

Finance Minister Michalis Sarris issued a decree on Wednesday for temporary limits on daily withdrawals to 300 euros ($385) to prevent the “collapse of credit institutions.”

The central bank confirmed that branches shuttered since March 16 - leaving homes and businesses short on cash - would open from 1000 GMT to 1600 GMT on Thursday.

Five shipping containers reportedly filled with billions of euros were delivered to the central bank in Nicosia late Wednesday, an AFP photographer said.

The decree came as around 1,500 anti-austerity protesters marched on the presidential palace to protest the EU-IMF rescue package, which delivers a major hit to big depositors and will see thousands left jobless.

Protesters chanted “Troika out of Cyprus,” substituting “Troika” for “Turkey” in a chant traditionally used to condemn the 1974 Turkish invasion.

Under a deal agreed in Brussels on Monday, Cyprus must raise 5.8 billion euros to qualify for a 10-billion-euro bailout from the “Troika” of the European Union and International Monetary Fund.

Depositors with more than 100,000 euros in the top two banks - Bank of Cyprus (BoC) and Laiki or Popular Bank - face losing a large amount of their money while Cyprus agreed to major reforms to its crucial banking system, bloated with Russian money and exposed to Greek debt.

The deal kept the Mediterranean island from crashing out of the euro but has caused anger at home.

Officials had originally said all banks would reopen on Tuesday, but then announced they would open two days later, which was confirmed on Wednesday, including for BoC and Laiki.

“The banks will serve the public tomorrow from 12 noon to 6 pm,” said central bank spokeswoman Aliki Stylianou told AFP. She was later cited by Cyprus News Agency as saying regular working hours would resume from Friday.

In his decree, Sarris said the capital controls, which also ban the cashing of cheque and prohibit travellers from taking more than 1,000 euros in banknotes abroad, would be temporary.

Non-cash payments or money transfers outside Cyprus are forbidden, with some narrowly defined exceptions, and there is a limit of 5,000 euros monthly in credit or debit card purchases while abroad.

Speaking of the talks in Brussels, Sarris told the private television station Sigma on Wednesday night “there was an obsession to close” both BoC and Laiki.

Ripple effect in the economy

“We will see worse days in 2013... the economy will go into deeper recession.”

Cyprus is the first Eurozone country to impose capital controls after bailouts - unlike Greece, Spain, Portugal and Ireland, which have also received multi-billion-dollar rescue packages.

Sarris’s decree cited the “lack of substantial liquidity and significant risk of deposits outflow, with possible outcome the collapse of the credit institutions” as the reasons for the restrictions.

He said this could cause “chain effects that could lead to systemic instability of the financial system and have destabilizing consequences on the economy as a whole.”

Bank employees union ETYK said staff were ready to return to work but warned the public not take out frustrations on them, saying that they too were “victims of criminal acts.”

Led by the opposition communist Akel party, some 1,500 protesters waved Cyprus and red flags as they chanted angry slogans against the “Troika.”

“The European Union is governed by dictators in Brussels... (and) has been established for the benefit of the banks and the big corporations,” said Michalis Thoukidides, a former banker.

“If people don’t understand this and work against it, slavery is very close for all of us in the European Union.”

The bailout involves restructuring BoC and the eventual winding down of Laiki, whose “good” assets are to be absorbed by the bigger bank.

That process claimed BoC chief executive Yiannis Kypris, who was sacked by the central bank governor on Wednesday a day after the bank chairman’s resignation was rejected.

Kypris said he had been asked verbally to tender his resignation, adding: “The reason given was the restructuring of the bank under the law approved by parliament and the demand of the troika.”

Laiki depositors face losses of up to 80 percent on deposits above 100,000 euros, while BoC savers have been warned they stand to lose 40 percent.

The uncertainty saw the European single currency fall to under $1.28 for the first time since November, while European stock markets slumped.

But instead of stopping contagion, the deal has made other struggling Eurozone members fear they could face terms as harsh as Cyprus following comments by Euro group chief Jeroen Dijsselbloem on Monday.