The Cypriot government has warned that banking curbs to prevent money from leaving the country will apply for longer than expected, in a blow to the island’s attempts to revive its paralysed economy.
The country’s foreign minister, Ioannis Kasoulides, said the regime, including a limit on cash withdrawals at €300 (£253) per day, would last for “about a month” – just 24 hours after the population was told they would only be in place for a week. The capital controls, the first ever to be imposed on a eurozone member state, have been introduced to prevent a cash exodus that would destroy what is left of the Cypriot banking system.
Kasoulides said: “A number of restrictions will be lifted and gradually, probably over a period of about a month according to the estimates of the central bank, the restrictions will be lifted.”
A few hours earlier, Kasoulides had said the Central Bank of Cyprus and the government of Cyprus would review the restrictions each day with a view to “progressive lifting of the measures as soon as circumstances allow”.
Capital flight has become a serious threat to the Cypriot economy because the terms of the €10bn bailout from the European Central Bank, the International Monetary Fund and the European Union include a haircut of at least 40% on Cypriot bank accounts that hold more than €100,000. In order to prevent account holders from removing the rest of their savings at once, the controls include the cash withdrawal limit and a curb on how much money individuals can take abroad. Anyone leaving the country, whether Cypriot or a visitor, can only take up to €1,000 with them in cash.
Almost no country that has enforced such controls has done so temporarily. Observers have warned that the measures undermine the purpose of monetary union, while there are few in Cyprus who believe they will be lifted soon. Many Cypriots were left confused by the controls, while expressing concern about the effect on their businesses and livelihoods.
As part of the bailout, the island’s second largest and most troubled bank, Laiki, will be wound down. People with more than €100,000 in their Laiki accounts could be hit with a levy of 80% – double the amount at the largest bank on the island, Bank of Cyprus. “No matter how much information there is, things are changing all the time,” said Costas Kyprianides, a grocery supplier in Nicosia
The news came as the president, Nicos Anastasiades, announced that he would be taking a 25% salary cut “in solidarity” with the Cypriot people. A senior aide to the newly-installed leader said Anatasiades’ cabinet ministers had also agreed to slash their wages by 20%.
The move, however, was quickly met with derision. While many Greek Cypriots said it appeared like a deft move, they also pointed out that the British-trained barrister, who has a prominent law firm in Nicosia, belonged to a wealthy elite unlikely to be much affected by the island’s economic tumult.
In his most recent tax declaration, released to the public, the 66-year-old politician admitted that his personal dividends from the firm amounted to €500,000, although he is no longer a practicing lawyer. As president, Anastasiades’ basic salary is around €110,000 but with additional perks is thought to be well in excess of that figure.
“I burst out laughing when I heard the news,” said Christos Neophytou, whose own legal practice is also based in Nicosia. “Anatasiades is a very, very rich man who after all has also used his political connections to expand his law firm. Like lots of people I am totally unimpressed by the decision.”