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Calm Gives Way to Tension in Cyprus as Banks Reopen An Orderly, if Edgy, Calm as Cypriot Banks Reopen
(about 3 hours later)
NICOSIA — Banks in Cyprus opened Thursday for the first time in almost two weeks, giving depositors access to their money with strict controls imposed by international lenders to prevent a bank run in the economically troubled country. NICOSIA — An air of orderly, if edgy, resignation pervaded the streets of Cyprus on Thursday, the first day in nearly two weeks banks here were open.
As the opening hour of noon approached, the earlier calm outside the banks began giving way to an edgier mood. Lines of 50 or more people had formed in front of the main branches of Bank of Cyprus and Laiki Bank, the country’s two largest banks. Customers at the front pressed their noses to the glass doors. Having waited since March 16 for access to his money, Dimitris Dimitriou was willing to stand in line for 45 minutes to get into his bank, as it and others across this Mediterranean island re-opened after a seemingly interminable stretch.
Similar scenes were playing out at the city’s other bank branches. Since the government froze bank accounts here two Saturdays ago amid an unprecedented financial crisis, Mr. Dimitirou’s wholesale optical business has been slumping. On Thursday, he desperately needed to see a teller to pay outstanding business transactions.
Inside the Bank of Cyprus main branch, tellers and security guards looked grim, bracing for the onslaught. Suddenly, two police motorcycles, blue lights flashing, appeared and circled the central square. He, like other Cypriots, are having to work with — and around — strict new controls on the flow of money that international lenders have imposed to prevent a bank run in this economically distressed country.
One of the customers in line, a 27-year-old businessman who would give only his first name, Miltos, shook the stack of papers in his hand. It represented nearly €40,000, or about $51,000, in bills he owed the suppliers of his small telecommunications company. Despite the curbs, Cypriot authorities were bracing for as much as 10 percent of the €64 billion, or $83 billion, on deposit in the country’s banks to be pulled out on this first day of banking in the bailout era.
The bank closure since March 16 had damaged his business “terribly,” Miltos said. Unless he could persuade Bank of Cyprus to let him transfer more than the €5,000 limit for the month that the government has decreed, he said he feared he might soon have to declare bankruptcy. “Financially it’s been a disaster, for me and for the entire population,” Mr. Dimitriou said as a small crowd pressed him toward a revolving door at a branch of Laiki Bank, where security guards were letting in only a few customers at a time.
On Wednesday, the government imposed stiff capital controls to clip the flight of money, including prohibiting electronic transfer of funds from Cyprus to other countries and capping at €3,000, or about $3,900, the amount of cash that can be taken abroad. The throng around him was patient. But Mr. Dimitriou said he had a feeling this was only the beginning of what could be a wave of withdrawals at Cypriot banks in the days and weeks ahead. He said he expected the government to continue restrict the amounts of money people could take out well beyond a seven-day limit currently in place, once officials realize the magnitude of hardship that Cyprus is likely to face in the coming months.
Withdrawals at automated teller machines will be limited to €300 per person; for the past few days withdrawals have been capped at €100. “They need to control the money,” he said. “People here have not recovered from the shock that has just happened to us.” When they do, he said, “a lot more people will want to get their money out of the banks.”
Credit and debit card charges will be limited to €5,000 per person per month. Banks will not cash checks; they will accept checks as deposits, but many people will no doubt be reluctant to put more money into a bank here. Bank accounts were frozen in Cyprus while the government held emergency talks with European lenders to secure a financial bailout needed to keep the country’s banks from collapsing. The ensuing drama, including the government’s unprecedented plan to skim bank accounts to help pay for the bailout, shook confidence here and in other European countries where banks are in a precarious position.
Bank clients also will not be able to withdraw money from fixed-term deposits before their maturity date. As revised, the bailout terms would dip into deposit accounts at levels only above the €100,000 threshold that is guaranteed against losses.
Maroulla Chrysanthou, a retiree from Nicosia who lives with her divorced son and her daughter, woke up early Thursday morning to head to the bank. She does not have an A.T.M. card and has not been able to get her money from the bank since they closed. Still, the controls on access to and transfer of money that Mr. Dimitriou and tens of thousands of other Cypriot depositors were grappling with Thursday represented a whole new world. Never before has a European country, let alone a member of the euro monetary union, prevented bank depositors from having full access to their own cash.
“My children brought me here, as I can’t walk easily,” she said, sitting patiently in the sun. “I’ve been here since 10 o’clock, reading my book and waiting. What else can I do?” Analysts said the measures, usually imposed in emerging countries like Argentina, effectively created two classes of the same money: euros in Cyprus are worth less than euros in France or Germany as long as the bulk of the money in Cypriot banks essentially remains frozen.
Ms. Chrysanthou said that for the 12 days while the banks were closed, her family was just barely covering its needs.
“We got by with what we had and my children were withdrawing some money so we could buy basic stuff,” she said. When asked how much she planned to take from her account, she said: “As much as I can.”
Yiannis Koumis, 27, works as a cashier at Laiki Bank, one of Cyprus’s biggest and most troubled banks. Under the terms of a €10 billion bailout that Cyprus secured from international creditors on Monday, Laiki’s good assets will be merged into Bank of Cyprus, and thousands will lose their jobs.
As he headed to work for the first time in more than two weeks, Mr. Koumis said employees still did not know what their future would be. “We have orders to work for the next four days and then all we have is uncertainty,” he said.
He said employees were given three pages of instructions to follow when customers come in to demand their money, outlining the transactions they are permitted to carry out. “We are only allowed to accept checks from Laiki and not to cash them, but deposit them in clients’ accounts,” Mr. Koumis said.
Some people said Thursday they would wait to go to the bank until all the fuss died down. “I don’t want to wait two or three hours in line today, so I’ll go next week,” said Christoforos Parisis, the manager of the Icebody Shop clothing store. He said he had withdrawn as much money as possible from teller machines while the banks were closed.
But being without cash has been a hardship, he said. “There’s no money, no nothing,” he said. “It affects me and my business very much. And we don’t know what will happen after.”
Under European Union treaties, restricting the free movement of capital is normally forbidden. But the European Commission issued a statement Thursday morning that the unprecedented imposition of capital controls in the euro area in Cyprus was legal.Under European Union treaties, restricting the free movement of capital is normally forbidden. But the European Commission issued a statement Thursday morning that the unprecedented imposition of capital controls in the euro area in Cyprus was legal.
The commission stressed, however, that the measures should be rescinded as soon as possible. Meanwhile, in the halls of power, Parliament was scheduled to vote later Thursday on a resolution demanding the resignation of Cyprus’s central bank chief, Panicos Demetriades.
“In current circumstances, the stability of financial markets and the banking system in Cyprus constitutes a matter of overriding public interest and public policy justifying the imposition of temporary restrictions on capital movements,” said the commission, one of three members of the so-called troika, including the European Central Bank and the International Monetary Fund, that oversees bailouts of euro-area states. The Cypriot president, Nicos Anastasiades, has sought to blame Mr. Demetriades for implementing measures required by Cyprus’s lenders that will lead to the closure of Laiki Bank, the nation’s most troubled. The move raised questions about maintaining the independence of the central bank.
The commission said it expected the measures to apply for seven days, but added that it would “continue monitoring the need to extend the validity of or revise the measures.” In central Nicosia, people started gathering before the opening hour of noon for access to at least some their money or to conduct corporate transactions after a nearly two-week delay that had put their businesses in peril.
Experts predict a much bigger bank run whenever the controls are eventually lifted or eased further. Before the open, lines of around 30 to 50 people were a common sight at branches of Bank of Cyprus and Laiki Bank, the country’s two largest banks, as customers pressed their noses to the glass doors. By early afternoon, they had they dwindled to small groups, and bank tellers inside calmly discussed clients’ needs.
“If you don’t impose the controls, the money is going to fly,” said Mujtaba Rahman, a senior analyst at the Eurasia Group. “But when you remove those controls, clearly the money is going to leave anyway. So they’re in a Catch-22.” One of the customers lined up at a Bank of Cyprus branch, a 27-year-old businessman who would give only his first name, Miltos, shook the stack of papers in his hand. It represented nearly €40,000 of bills he owed the suppliers of his small telecommunications company.
To make sure enough cash is on hand, the European Central Bank sent an airplane filled with about €1.5 billion in a container to Larnaca airport near Nicosia on Wednesday. The container was loaded onto a truck and escorted by police to the Cypriot central bank for safekeeping, said a person with knowledge of the operation who was not authorized to speak publicly. The long bank closure had damaged his business “terribly,” said Miltos, standing under a warm sun. Unless he could persuade Bank of Cyprus to let him transfer more than the €5,000 limit for the month that the government has decreed, he said he feared he might soon go out of business. “I’m trying to hold on by tooth and nail,” he said.
The capital controls are aimed at clipping the wings of money that might otherwise fly from the county. They include prohibiting electronic transfer of funds from Cyprus to other countries, while capping at €3,000 — about $3,900 — the amount of cash that can be taken abroad. Daily withdrawals from automated teller machines will be limited to €300 per person, an improvement on the €100 cap that had been in place the past few days.
Credit and debit card charges will be limited to €5,000 per person per month. Banks will not cash checks. And while they will accept checks as deposits, many people might be reluctant to put more money into a bank here. Banking clients, moreover, will not be able to withdraw money from fixed-term deposits before their maturity date.
Bank employees started preparing early in the morning for reopening day. Bags of coins were piled high on a desk at Laiki Bank, while a manager wearing a dark suit stood at the front door waving away a retiree who was trying to get in before the doors opened.
Yiannis Koumis, 27, a cashier at Laiki Bank, said employees were given three pages of instructions to follow when customers came in to demand their money, outlining the transactions they are permitted to carry out.
But his mood was grim. Under the terms of the €10 billion bailout that Cyprus secured from international creditors on Monday, Laiki’s good assets will be merged into Bank of Cyprus. Thousands will lose their jobs — very possibly Mr. Koumis among them. “We have orders to work for the next four days, and then all we have is uncertainty,” he said.
Some people planned to wait until the fuss quieted down. “I don’t want to wait two or three hours in line today, so I’ll go next week,” said Christoforos Parisis, the manager of the Icebody Shop clothing store.
He said he had withdrawn as much money as possible from teller machines while the banks were closed.
But being without full access to cash has been a hardship, he said. “There’s no money, no nothing,” he said. “It affects me and my business very much. And we don’t know what will happen after.”
Maroulla Chrysanthou, a retiree from Nicosia who lives with her divorced son and her daughter, woke up early Thursday morning to head to the bank. She does not have an A.T.M. card and has not been able to get her money from the bank since March 16, when it closed.
For the 12 days during which the banks were closed, her family was just barely covering its needs. “We got by with what we had and my children were withdrawing some money so we could buy basic stuff,” Ms. Chrysanthou said. When asked how much she planned to take from her account, she said: “As much as I can.”
When the European Commission issued its statement Thursday stating that the imposition of capital controls by Cyprus was legal, if unprecedented, it stressed that the measures should be rescinded as soon as possible.
“In current circumstances, the stability of financial markets and the banking system in Cyprus constitutes a matter of overriding public interest and public policy justifying the imposition of temporary restrictions on capital movements,” said the commission, one of three members of the so-called troika, which also includes the European Central Bank and the International Monetary Fund, that oversees bailouts of euro zone states.
The commission said it expected the measures to apply for seven days but added that it would “continue monitoring the need to extend the validity of or revise the measures.”
To make sure enough cash was on hand, the European Central Bank on Wednesday sent an airplane filled with about €1.5 billion in a container to Larnaca airport near Nicosia on Wednesday. The container was loaded onto a truck and escorted by police to the Cypriot central bank for safekeeping, said a person with knowledge of the operation who was not authorized to speak publicly.
The person said the European Central Bank had indicated it would continue flying cash to the country as needed.The person said the European Central Bank had indicated it would continue flying cash to the country as needed.
The Cypriot finance minister, Michalis Sarris, said Wednesday that a flood of withdrawals was bound to happen quickly anyway, but that the restrictions would at least help stem a mass flight of deposits.
“Each day that banks remain closed creates more uncertainty and more difficulties for people, so we would like to do our utmost to make sure that this new goal that we have set will work,” Mr. Sarris said.
Despite those strictures, the Cypriot authorities are bracing for as much as 10 percent of the €64 billion on deposit in the country’s banks to be pulled out on Thursday.
The freezing of accounts at all banks since March 16 means businesses have not been able to pay their employees. Importers have also not been able to pay their bills, raising concerns about shortages of basic goods on an island that imports almost everything it consumes.
By imposing capital controls, European and Cypriot officials have effectively created two classes of euro: cash that can be freely spent, and cash that is locked up by capital controls, diminishing its value.
Andreas Riris in Nicosia and James Kanter in Brussels contributed reporting.Andreas Riris in Nicosia and James Kanter in Brussels contributed reporting.