With banks in Cyprus closed until March 28 and restrictions in place on how much money can be transferred or withdrawn from accounts, the mood in Nicosia is glum.
Banks had been due to reopen on March 26. The government announced the postponement late on March 25 – fearing people could rush to withdraw money after a ten billion euro bailout deal backed by the EU and International Monetary Fund (IMF) was accepted.
Companies complained of being unable to pay wages and buy new stock.
Accountant Takis Yalouris said: “This is bad for the economy. They should not leave the banks closed for an extended period. Business is dead and people are angry. This uncertainty is disturbing people.”
Nicosia resident Pandelis Nagos agreed, adding: “It is a big problem. As you can see around here, everything is empty. Businesses are not working. There is no cash at all. If the European Central Bank puts limits on our withdrawals it means people will run to banks and take what they have.”
The Cyprus bank bailout
- The bailout will mean a significant restructuring of Cyprus’ banking sector
- The country’s second largest bank, Laiki bank, will be split into two parts, a “bad bank” and “good bank”, before being closed, incurring thousands of job losses
- Deposits in Laiki bank of less than 100,000 euros (effectively the “good bank”) are insured by EU law and will be transferred to the country’s biggest bank, Bank of Cyprus
- Deposits in Laiki bank of more than 100,000 euros are not insured by EU law and will be put into the “bad bank”
- Deposits in this “bad bank” and deposits of more than 100,000 euros in Bank of Cyprus will be frozen and used to pay Laiki’s debts and recapitalize Bank of Cyprus. These uninsured depositors will have to face forced losses of up to 40% on their deposits
Cypriot Finance Minister Michalis Sarris warned that people with more than 100,000 euros in their accounts could lose up to 40 percent in the levy, but those with less will not be affected.
During a televised address on March 25, Cypriot President Nicos Anastasiades explained the bailout was the best way to save the country.
“Cyprus was one step away from financial collapse, our choices were not easy and the environment was not ideal but after tough negotiations, with persistence and also a sense of responsibility, we have reached a result that ensures this country’s future,” said Anastasiades.
On March 25, markets across Europe reacted badly, fearing other bank accounts could face levies in future eurozone bailouts.
It may be too early to assess the implications of a scaled-down banking sector in Cyprus – a condition of the bailout deal.