| Series Title | EurActiv |
|---|---|
| Series Details | 28.03.13 |
| Publication Date | 28/03/2013 |
| Content Type | News |
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Cyprus imposes severe capital controls A woman walking past a branch of the Bank of Cyprus branch in Nicosia, Cyprus 27 March 2013 as the country's banks remain closed. Cyprus banks will are expected to open early 28 March. Temporary measures will be placed on transactions when they do re-open despite the EU/IMF bailout deal which will see larger depositors lose money.©EPA Cyprus is to become the first eurozone country ever to apply capital controls – with limits on credit card transactions, daily withdrawals, money transfers abroad and the cashing of cheques – intended to prevent a vast outflow of euros when its banks open on Thursday. Under drastic measures that some analysts say are incompatible with monetary union, depositors would be able to withdraw no more than €300 in cash each day, said people familiar with the move. Transfers over €5,000 would require permission of the central bank. Overseas credit card transactions would be limited to €5,000 per month, but unrestricted in Cyprus. And there would be a ban on people taking more than €3,000 of bank notes out of the country per trip. Cypriot banks will reopen on Thursday morning for the first time in almost two weeks and stay open for six hours. Without controls, officials fear a run on deposits after Nicosia agreed to a €10bn bailout that imposes losses on big depositors – a first in the three-year-old eurozone debt crisis. While the capital controls are designed to expire after seven days, people with knowledge of the matter said the government would continue to renew the curbs on a weekly basis for as long as necessary. “Otherwise whatever money is left in the banks will fly out of Cyprus,” said one person close to the central bank. Chris Pavlou, a former Barclays banker and vice-chairman of Laiki until Friday, insisted that capital controls were necessary, and that the government would adhere to EU requirements to uphold them for at most a couple of weeks. “You have to give the system time to get over the hangover,” he said. The controls, which apply to all banks, will require a big enforcement effort, including extra checks at airports. Mr Pavlou said the interior ministry planned to have police monitoring the situation at bank branches across Cyprus but that they would be placed discreetly. “The last thing you want is to see armed guards guarding the banks.” In Nicosia, helicopters circled over the capital and the noise of police sirens filled the night air as demonstrators converged on the presidential palace railing against the Troika of international lenders. Some experts believe the capital controls could be subject to legal challenge. Guntram Wolff, the deputy director of European think-tank Bruegel, said they potentially violated articles 63 and 65 of the EU treaties that stated capital controls could only be “justified on grounds of public policy or public security” and that such measures should “not constitute a means of arbitrary discrimination or a disguised restriction on the free movement of capital and payments”. “In my view this one sentence means [the new capital control measures] are not a watertight case. It may fail in courts,” Mr Wolff said. “If you really get the message out there to the market that we can do this and it’s perfectly legal, in my view it becomes very dangerous,” he added. As part of the new curbs, Cyprus will not allow any cheques to be cashed. Cypriot importers will be allowed to pay for goods only after showing supporting documents, while Cypriot students studying abroad will be able to receive only up to €10,000 a term, and only if the money is transferred by their immediate family. Both the Cypriot government and Central Bank of Cyprus will be exempt from the capital controls. Earlier on Wednesday, Anton Siluanov, Russia’s finance minister, had warned against severe capital controls, saying they could “provoke additional problems” and also affect Russia’s willingness to restructure the €2.5bn loan it gave Cyprus in 2011. “We will discuss [the loan] in the context of the decisions the parliament adopts [on capital controls],” Mr Siluanov said. Copyright The Financial Times Limited 2013. Banks in Cypris reopened on the 28 March 2013 after being closed for ten days, with tight controls imposed on transactions to prevent a serious bank run. Cyprus became the first eurozone country to impose capital controls. |
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| Source Link | Link to Main Source http://www.euractiv.com/euro-finance/cypriot-banks-reopen-brace-run-c-news-518780 |
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| Subject Categories | Economic and Financial Affairs |
| Countries / Regions | Cyprus, Europe |
