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Cypriot finance minister quits as inquiry begins

'Actions and omissions' that led to crisis will be investigated by judges

Cyprus's Finance Minister fell on his sword as the government began an investigation into the near-collapse of the nation's economy.

Michalis Sarris, who was criticised for his handling of negotiations with international creditors over the nation's €10bn (£8.45bn) bailout, had been in the role for little more than a month following President Nicos Anastasiades' election victory in February.

He will be replaced by the Labour Minister, Harris Georgiades.

Mr Sarri stepped down after Mr Anastasiades appointed a panel of three former supreme court judges to investigate the country's plunge to the verge of bankruptcy. The President said ordinary citizens shouldering the burden of "actions and omissions" want to see those responsible punished.

Banks were closed for 13 days before opening last Thursday with strict capital controls. Although the central bank loosened some restrictions, the controls are likely to be in place for at least a month.

Laiki, the country's second-largest bank, is to be wound down, with depositors holding more than €100,000 taking major losses. Savers with more than €100,000 at the Bank of Cyprus could also face losses of up to 60 per cent on their savings as part of the rescue deal.

The President urged the judges to investigate his family's business dealings as he fended off newspaper accusations that a company said to be co-owned by one of his relatives took money out of Laiki days before the country agreed to its rescue.

News of the investigation came as official figures showed Cyprus's unemployment rate rising to 14 per cent in February. Grant Lewis, the head of research at Daiwa Capital Markets Europe, warned: "A contraction in GDP of at least 10 per cent this year now looks entirely feasible, with something similar not unrealistic next year too, with unemployment rising above 20 per cent."

There was better news for British depositors saved from heavy losses as £270m of deposits stuck in Laiki were switched to a UK subsidiary of the Bank of Cyprus. The move guarantees the cash of about 5 per cent or 750 of the 15,000 British savers in Laiki who had more than €100,000 in deposits.

The deal sees British savings accounts and current accounts that are in credit transferred to the Bank of Cyprus's UK subsidiary, which comes under the aegis of the Bank of England's new Prudential Regulation Authority. Andrew Bailey, a deputy governor at the Bank of England and the chief executive of the PRA, spent last week thrashing out a deal to protect savers.

Laiki Bank UK was a branch of the Cypriot bank rather than a subsidiary, meaning that Britain was not obliged to protect its depositors. But the cash has been transferred in full and will now come under the UK Financial Services Compensation Scheme, which protects the first £85,000 of British savers.

The UK deal does not cover customers with current accounts in overdraft. These accounts are now frozen at Laiki Bank UK and will not be transferred. Customers in credit will be transferred, but their overdraft facilities have been cancelled.