This article is from the source 'nytimes' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at http://www.nytimes.com/2013/03/29/business/global/cyprus-banks.html

The article has changed 13 times. There is an RSS feed of changes available.

Version 8 Version 9
Edgy Calm as Banks in Cyprus Reopen Edgy Calm as Banks in Cyprus Reopen
(about 1 hour later)
NICOSIA, Cyprus — 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. NICOSIA, Cyprus — As Cyprus shuffled partway back toward monetary modernity Thursday,  with mostly orderly lines outside banks open for the first time in nearly two weeks, Stelios Sofroniou, a pig farmer, fumed at being able to withdraw only 300 euros. He needs 30 times that to buy feed and make sure his 15,000 increasingly hungry pigs ‘‘don’t start eating each other.’’
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.
/>‘‘We were in the Stone Age, and now we’re entering the 19th century,’’ he said after a trip to Akaki’s village square to visit his branch of Bank of Cyprus, which opened Thursday for the first time since March 15. He cursed the new strict controls that for at least the next week will give him access to only a tiny portion of his money and will not allow him to cash checks freely or use his bank to pay suppliers who use different ones.
Since the government froze bank accounts here two Saturdays ago amid an unprecedented financial crisis, Mr. Dimitiriou’s wholesale optical business has been slumping. On Thursday, he desperately needed to see a teller to pay outstanding business transactions. Here in Akaki, a village of around 4,000, as in the nearby capital,  Nicosia, fears that the reopening of banks could lead to a chaotic stampede gave way Thursday to conflicting emotions: relief that bank doors were at least open again, but anxiety over new rules that allow bank customers to make deposits but tightly ration out the money already on deposit.
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. The restrictions are meant to keep customers from draining their accounts in the wake of the bailout deal announced early Monday morning in Brussels that European leaders hailed as saving Cyprus’s teetering banks  — and the country as a whole  —   from collapse.
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. But the prevailing view in Cyprus is that the leaders of the European currency project have mainly sought to  quarantine a potential Cypriot financial contagion by limiting it to a disease whose only real victims will be  Cyprus and its bank depositors.
“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. For Mr. Sofroniou,  the bailout terms show that the European Union is driven by the same merciless forces now playing out in the long concrete and aluminum sheds of his family farm. ‘‘The weakest pigs in the pen don’t eat,’’ Mr. Sofroniou said. ‘‘The strong ones eat everything. This is the law of nature.’’
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. ‘‘The weak ones will be eaten,’’ he continued, pointing to specks of blood on the ears and tails of scrawny pigs that can’t fend for themselves in a daily struggle for meager rations of food.  He needs 30 tons of feed a day, but with the limited money he can now withdraw, he can buy only one ton from his supplier, who is still demanding cash because his own suppliers of grain, all of it imported, are also insisting  on cash.
“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.” Mr. Sofroniou has a sheaf of checks from customers who have bought pigs from him over the past two weeks. But they were nearly all drawn on accounts at cooperative banks and are not yet honored by Bank of Cyprus.
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. Not since the introduction of the euro currency in January 1999 has a European country prevented bank depositors from having full access to their own cash. Originally, the controls on cash were supposed to be in place for only a week. But acknowledging that that may not be long enough to prevent a bank run, the Cypriot foreign minister, Ioannis Kasoulides, said Thursday that restrictions on financial transactions would not be lifted for a month.
As revised, the bailout terms would dip into deposit accounts at levels only above the €100,000 threshold that is guaranteed against losses. Earlier Thursday, as banks were preparing to open at noon, local radio stations and Twitter messages pleaded for patience, urging people to show patriotic discipline and not to stampede cashier windows.  To make sure there was enough cash on hand, on Wednesday the European Central Bank had flown in a container with about 1.5 billion euros, or $1.9 billion,  to the Larnaca airport near Nicosia, which was then trucked under police escort to the Cypriot central bank.
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 since the introduction of the euro has a European country prevented bank depositors from having full access to their own cash. Bank employees had started preparing early for reopening day. Many were given three pages of instructions to follow when customers came in to demand their money, outlining the transactions they would be  permitted to conduct.  Bags of coins were piled high on a desk at Laiki Bank in central Nicosia, while a manager in a dark business suit stood at the front door waving away a retiree who was trying to enter early.
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. Some of those who lined up Thursday at banks across the country conceded understanding for the rigid restrictions,  imposed by Cypriot officials in consultation with the E.C.B., the European Commission and the International Monetary Fund  — the so-called troika of lenders that now largely dictates Cyprus’s fate. The triumvirate has promised the country 10 billion euros as long as it shrinks a banking sector bloated by money from wealthy Russians and other foreigners seeking to dodge taxes back home.
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. ‘‘They need to control the money,’’ said  Dimitris Dimitriou, the owner of an optical business. He stood in line for 45 minutes in Nicosia  to get inside a branch of Laiki Bank, which is due to be dismantled as part of the bailout deal. ‘‘Financially it’s been a disaster, for me and for the entire population.’’
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. As security guards let only a slow  trickle of customers through a revolving door, a small crowd pressed Mr. Dimitriou toward the bank’s entrance. But he was in no physical danger. With the police on high alert and extra private security guards called in to prevent disorder, no incidents of violence were reported.
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. Few think that the reopening of banks marks a return to normality or even a sign that a bank run still will not  happen whenever the currency controls are lifted. ‘‘People here have not recovered from the shock that has happened to us,’’  Mr. Dimitriou said. When they do, ‘‘a lot more people will want to get their money out of the banks.’’
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. Analysts said that as long as the controls remain in place, the measures effectively create two classes of the same money: because they are not fully fungible, euros in Cyprus are worth less than euros in France or Germany.
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. In Akaki, the village president, Giannakis Chatzyiannis,  said he feared that ‘‘this is just the start of our troubles.’’ The economic crisis, he said, will get far worse as jobs evaporate  —   including those at a local branch of Laiki Bank due to be shut down. He was supposed to pay his own employees at the end of March but told them they would now have to wait.
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. ‘‘Everyone knows that the next 10 years are going to be very bleak,’’ Mr. Chatzyiannis said.  ‘‘We are in a downward spiral.’’
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. Under E.U. treaties, restrictions on the free movement of capital like those now in force in Cyprus are normally forbidden. But the European Commission, the Union’s administrative arm,  issued a statement Thursday morning that the Cyprus controls were legal  —   even though it urged that they be rescinded as soon as possible.
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. Anger at the Union and its most powerful member, Germany, has reached a boiling point in Cyprus.  Even in Akaki, a village distant from the political passions of the capital, Chancellor Angela Merkel of Germany has become a hate figure. A handwritten sign by the roadside entrance to the village used a vulgarism to refer to Ms. Merkel, followed by the words ‘‘Cyprus above all.’’
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. ‘‘We are what you call collateral damage,’’ said Chrysanthos Chrysanthou,  a goat and chicken farmer who blamed a German-led push to end Cyprus’s status as a banking haven for leaving his animals on ‘‘starvation rations.’’
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. He, too, went to the bank Thursday and withdrew the limit of 300 euros, far less than he needs to keep his animals fed.
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. Germany and other lenders ‘‘say they want to penalize bankers but are just hurting everyone,’’ Mr. Chrysanthou said. ‘‘We are not all bankers. A lot of people here do real work.’’
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. Screaming into his mobile phone as a supplier of animal feed called to demand cash, he said he could pay only by check. The supplier rejected the proposal because he uses a different bank.
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. Throwing down the phone in fury, Mr. Chrysanthou  explained that he had returned to Cyprus in 1994 after years in South Africa,  but was now thinking of leaving.  ‘‘I left South Africa after I was robbed by thieves. Now I’m being robbed again here.”
He said he had withdrawn as much money as possible from teller machines while the banks were closed.  Liz Alderman reported from Nicosia. Dimitrias Bounias contributed reporting from Akaki, Cyprus, and Andreas Ris from Nicosia.
/>
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.
Andreas Riris in Nicosia and James Kanter in Brussels contributed reporting.

This article has been revised to reflect the following correction:

This article has been revised to reflect the following correction:

Correction: March 28, 2013Correction: March 28, 2013

An earlier version of this article referred incorrectly to capital controls in Europe. They have not been applied since the introduction of the euro; it is not the case that they have never been applied.

An earlier version of this article referred incorrectly to capital controls in Europe. They have not been applied since the introduction of the euro; it is not the case that they have never been applied.