Cyprus will be detached from the eurozone today as its government scrambles to stop money flooding out of the country.
The Cypriot Central Bank last night announced a series of capital control measures that restrict the flow of funds from the island, as well as putting a limit on what Cypriots can spend overseas on their credit cards.
The measures – which are for an initial period of four days but could be in force for longer – are timed to kick in as the island’s banks reopen this morning. They include:
* The suspension of most electronic money transfers abroad, with some exceptions for imports.
* A limit of €1,000 in cash a person can take out of the country, which will be enforced at the island’s borders.
* A ban on cashing cheques, although people will still be able to pay money in to their accounts.
* A limit of €5,000 a month on credit card spending abroad.
* A €300-a-day cap on cash withdrawals at ATMs or over the counter.
Cyprus’s banks have been shut for 12 days as the island’s government battled with the European Union and the International Monetary Fund over how it could raise the €5.8bn it needed to trigger a €10bn bailout that would allow it to remain solvent.
The eventual deal signed in Brussels on Sunday will see amounts over €100,000 in the two biggest banks frozen. This money will be unavailable when banks reopen, but the government has reassured people that all deposits under €100,000 will be protected. Officials fear a general panic as ordinary Cypriots, fearful of further turmoil ahead, try and get their hands on their cash. Businesses and foreign account holders could also try and move money to more secure countries.
Banks will open from midday to 6pm, the central bank announced last night, while extra security guards will be on duty to prevent any disorder. “We will look at the best way to limit the possibility of large sums of money leaving, and not imposing punitive conditions on the economy, businesses and individuals,” Cyprus’s Finance Minister, Michael Sarris, told a local television station.
“It’s humiliation,” said Giota Vrassidou, who owns a bar in Nicosia, as she wiped the tears from her eyes. “I doubt I’ll be seriously hit but I’m sure my clientèle will drop as liquidity will run dry.” Haro Kuyumjian, the owner of a textile company, agreed: “My main concern is my clients and their purchasing power with these controls.”
The controls are to be reviewed after the initial period has expired. While business owners said they understood why controls on the movement of money have been put in place, many were worried they could cripple the island in the short term.
Constantine Economides, managing director at Orangefield Cyprus, one of the island’s largest corporate services providers, said he thought the controls were “absolutely necessary”. But he also warned that the island would feel their effect. “It will certainly hinder the economy of Cyprus and slow down most economic activity here,” he added.
Mr Economides said that most of his clients were seeking temporary solutions, such as opening bank accounts abroad.
Adding to the uncertainty in Cyprus, the chief executive of the Bank of Cyprus,Yiannis Kypri, was sacked yesterday by the central bank. As part of the bailout, the second largest lender, Laiki, is due to be shut down with small deposits merged with the Bank of Cyprus, the largest lender. But there is still ambiguity about the scale of restructuring at the Bank of Cyprus.