Banks to open in Cyprus Thursday

Thursday 28 March 2013 06.33
1 of 3
The rescue deal is the first in Europe's single currency zone to impose losses on bank depositors, raising the prospect that savers will panic and scramble to get at their cash
The rescue deal is the first in Europe's single currency zone to impose losses on bank depositors, raising the prospect that savers will panic and scramble to get at their cash
There have been numerous protests in Cyprus since the bailout deal was reached
There have been numerous protests in Cyprus since the bailout deal was reached
Cypriot finance minister Michalis Sarris is confident the banks will open tomorrow
Cypriot finance minister Michalis Sarris is confident the banks will open tomorrow

Cypriots are expected to descend in their thousands on banks tomorrow, which reopen with tight controls imposed on transactions to prevent fleeing depositors from cleaning out the vaults in a catastrophic bank run.

The east Mediterranean island fears a stampede at banks almost two weeks after they were shut by the government as it negotiated a €10 billion bailout package with the European Union to escape financial meltdown.

The rescue deal is the first in Europe's single currency zone to impose losses on bank depositors, raising the prospect that savers will panic and scramble to get at their cash.

Authorities insist that strict rules imposed to prevent a bank run will be temporary, but economists say they will be difficult to lift as long as the economy is in crisis.

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.

Strict controls, contained in a Finance Ministry decree, limit cash withdrawals to no more than €300 per day, ban the cashing of cheques and bar businesses from transferring money abroad unless they can show it is for imports.

The island's central bank will review all commercial transactions over €5,000 and scrutinise transactions over €200,000 on an individual basis. People leaving Cyprus can take only €3,000 with them.

With just 860,000 people, Cyprus has some €68 billion in its banks - a vastly outsized financial system that attracted deposits from foreigners as an offshore haven but foundered after investments in neighbouring Greece went sour.

The European Union and International Monetary Fund concluded that Cyprus could not afford a rescue unless it imposed losses on depositors, previously seen as anathema.

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 euro that can be freely spent abroad.

The authorities say they can avoid that by lifting controls quickly. They have been imposed initially for just four days.

"The rationale is that these measures will be reviewed on a daily basis, so if there is the possibility of relaxing them we will," Yiangos Demetriou, head of internal audit at the Central Bank, told state television.