Cypriots have queued calmly at reopened banks under tight controls imposed on transactions to prevent a run on deposits after the government was forced to accept a stringent EU rescue package to avert bankruptcy.
Banks were shut almost two weeks ago as the government negotiated a €10 billion international bailout, the first in Europe’s single currency zone to impose losses on bank depositors.
Bank staff turned up for work early as cash was delivered by armoured trucks, and queues of at least a dozen people formed at branches in the capital, with uniformed security guards on duty.
Doors opened at noon (10am Irish time) but initially at least there was no sign of any major run on the banks, as had been feared. A lot of money had already left electronically.
Figures published by the Central Bank of Cyprus today showed savers from other euro zone countries withdrew 18 per cent of their deposits from the stricken island in February, as talk of a tax on bank accounts rose.
Overall private sector bank deposits in Cyprus fell by 2.2 per cent to €46.4 billion last month, after a similar drop in January.
Authorities say the emergency rules imposed to limit withdrawals and prevent a bank run will be temporary, initially for seven days, but economists say they will be difficult to lift as long as the economy is in crisis.
The capital controls decree was taped to the windows of bank branches and staff handed out copies to customers. In Nicosia, there was relief, but some apprehension about what might happen. "You've no idea how much I've been waiting for this," said 64-year-old pensioner Froso Kokikou, waiting in line at a branch of Cyprus Popular Bank, also known as Laiki.
Many of those waiting in line were elderly people, who said they had run out of cash because they did not have bank cards.
The Cyprus stock exchange said it would remain closed today. On international markets, German 10-year bond yields fell to their lowest level since August on fears of spillover from the Cyprus crisis to other struggling euro zone members.
Yields fell 2 basis points to 1.256 per cent. Traders cited the risk that depositors in other countries could take fright at any signs of a run on deposits in Cyprus.
Container trucks loaded with cash pulled up inside the compound of the central bank in the capital Nicosia last night to prepare for the reopening, a central bank source said.
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.
A finance ministry decree limited cash withdrawals to no more than €300 per day and banned the cashing of cheques.
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 may take only €1,000 with them.
A police source told Reuters that passengers leaving Cypriot airports were subject to extra searches. Officers had orders to confiscate cash above the €1,000 limit.
With just 860,000 people, Cyprus has about €68 billion in its banks - a vastly outsized financial system that attracted deposits from foreigners, especially Russians, as an offshore haven but foundered when 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, seen as anathema in previous euro zone bailouts. That view has angered Cypriots, whose foreign minister said his country was sacrificing too much for the bailout.
“Europe is pretending to help us but the price to pay is too high: nothing less than the brutal destruction of our economic model,” Ioannis Kasoulides told the French newspaper Les Echos.”
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 euros that can be freely spent abroad.
The bailout, agreed in Brussels on Monday, looks set to push Cyprus deeper into an economic slump, shrink the banking sector and cost thousands of jobs.
