Cypriots queued calmly at banks as they reopened on Thursday 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 euro ($13 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 armored 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 (6:00 a.m. EDT) but initially at least there was no sign of any major run on the banks, as had been feared.
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.
“I feel a sense of fear and disappointment having to queue up like this; it feels like a Third World country, but what can you do?” Kokikou said. “This is what they imposed on us and we have to live with it.”
Kostas Nikolaou, a 60-year-old pensioner, said the uncertainty of the past two weeks had been “like a slow death”.
He added: “How can they tell you that you can’t access your own money in the bank? It’s our money, we are entitled to it.”
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 on Thursday.
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 percent. 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 on Wednesday 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 euros per day and banned the cashing of cheques.
The island’s central bank will review all commercial transactions over 5,000 euros and scrutinize transactions over 200,000 euros on an individual basis. People leaving Cyprus may take only 1,000 euros 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 euro limit.
With just 860,000 people, Cyprus has about 68 billion euros in its banks – a vastly outsized financial system that attracted deposits from foreigners, especially Russians, as an offshore haven but foundered when investments in neighboring 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.
Reflecting fears of a spillover, ratings agency Moody’s said it kept euro zone strugglers Irelandand Portugal on negative outlook, citing the Cyprus bailout as an extra risk.
The European Commission said the capital controls were legal and justified under EU law provided they were strictly temporary and proportionate. The EU executive said it would monitor “the need to extend the validity of or revise the measures”.
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.
Cyprus Popular Bank, the country’s second biggest, will be closed and its guaranteed deposits of up to 100,000 euros transferred to the largest bank, Bank of Cyprus.
Deposits of more than 100,000 euros at both banks, too big to enjoy a state guarantee, will be frozen, and some of those funds will be exchanged for shares issued by the banks to recapitalize them.
While big depositors will lose money, the authorities say deposits up to 100,000 euros will be protected.