Finance minister suggests haircut on deposits over €100,000 could be as high as 40% as Bank of Cyprus chairman resigns
Cyprus moved into its post-bailout phase in restive mood on Tuesday as its finance minister suggested a haircut on deposits over €100,000 (£85,000) could be as high as 40% and the head of the island's biggest bank resigned.
The tiny nation on the frontline of Europe's debt crisis reeled from the news that wealthy depositors would see their accounts being hard hit under the onerous terms of the €10bn euro lifeline thrown by the European Union, the European Central Bank and the International Monetary Fund to Cyprus. Enforced losses had originally been envisaged at no more than 20%.
"The exact percentage is not … yet decided but it is going to be significant," admitted finance minister Michalis Sarris. Hours later, the chairman of the Bank of Cyprus, Andreas Artemis, abruptly resigned saying neither he, nor his board, had been properly informed of the scale of the losses or the government's plan to sell off the bank's network of branches in Greece. Artemis, who was replaced by an outside administrator, stepped down as the island's banks remained shuttered for a 10th straight day in an unprecedented step for an advanced western economy.
Lenders, including banking co-operatives, had been expected to re-open on Tuesday but in a surprise move highlighting Cyprus's financial fragility, Nicosia's beleaguered government announced that the closure would be extended until Thursday at least. Sources said the step followed disagreement between the European commission and the ECB over how to adjust the banking sector in the wake of the decision to wind down the country's second biggest lender, Laiki, and merge part of it with the Bank of Cyprus.
"It's a huge task. We're in uncharted territory and are working around-the-clock," said one source at the central bank. The continued uncertainty was making it increasingly difficult for businesses to operate. Without access to cash, firms said it was becoming almost impossible to find raw materials given that so many suppliers were no longer accepting credit. "Cyprus has been treated very unfairly even if, having said that, mistakes were committed by both government authorities and the financial sector," the island's former foreign minister Nicos Rolandis told the Guardian. "The haircut on depositors is an extreme measure that hurts innocent people who have worked hard to assemble life savings and it sets a precedent."
Despite signs of a massive capital flight from the island in the past week, Rolandis said it was imperative that crisis-hit Nicosia tried to salvage its financial services industry. "The big challenge now is to keep as many foreign companies as possible in Cyprus," he said. "We still have many advantages … taxation is still low, the infrastructure is already there." But in another first for a eurozone member state, Sarris admitted that capital controls would soon be implemented. Among the draft proposals being considered, ahead of banks reopening, were weekly limits on cash withdrawals, curtailing euro transactions abroad and a prohibition on cheques.
The controls were confirmed as experts working in the financial sector confided that they were being approached by officials in Malta, Luxembourg and Lichtenstein to persuade wealthy depositors to move their assets out of Cyprus. "I've received three emails today and that's just from Malta," said Christos Neophytou, a lawyer who specialises in registering foreign companies on the island. "They're even offering financial incentives to try to convince clients to move out of Cyprus"
The developments came as the bleak mood turned to anger with furious bank employees demonstrating outside the Bank of Cyprus headquarters in Nicosia. Earlier, high school children and students took to the streets to denounce the troika's policies. "You have destroyed our future," said one banner held aloft by protesters as they demonstrated against the stringent austerity measures imposed by the EU, IMF and ECB.
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