With fear building fast on Cyprus that there may not be a resolution to the country’s economic crisis and the banks, which have been closed since March 15 not due to open again until March 26, the central bank has imposed a 100-euros ($130) per day withdrawal limit at cash machines for all local banks, down from a 260 euros ($338) limit that had been set.
Bank officials said the limit would apply to all banks on the island and remain in place until it’s known whether the European Central Bank (ECB), which has threatened to cut off liquidity to the island’s central bank on March 26 unless the government reaches an agreement with international lenders who are demanding a partial confiscation of all bank accounts to trigger a 10 billion euros ($13 billion) bailout.
The government and Eurozone officials were meeting on March 24 trying to find a solution amid reports the confiscation tax could be 20 percent on amounts above 100,000 euros in the Bank of Cyprus and 4 percent on all amounts at other banks, which would violate the government’s own guarantee to protect deposits from loss up to that amount.
Other controls being mulled were a daily limit on withdrawals from banks when they open to prevent a run on the banks amid fears depositors who no longer trust the institutions, would take out all their money at once. A government official said a new agreement could put on such tight limits that it could be years before depositors would be able to get at their money and businesses would also be curtailed from making large transactions.
Cypriot residents were complaining already that they didn’t have enough money to pay bills or make purchases and many stores and other businesses were demanding cash only and refusing to accept credit cards. Supermarkets said they only had enough food left for a few days. Media reports said late on March 24 that the International Monetary Fund (IMF), which, along with the European Union and ECB make up the Troika of lenders, was squeezing President Nicos Anastasiades hard to submit to even tougher conditions that originally set, putting him in a precarious political position as he had campaigned only a month earlier before Feb. 25 elections against the confiscation scheme.
The Troika was said to be playing hard ball with Cypus after the Parliament last week, by a 36-0 margin, rejected the calls to go after the money of bank depositors who didn’t cause the crisis but were being forced to provide a partial bailout after the institutions lost 4.5 billion euros ($5.84 billion) in bad loans to Greek businesses that went under in that country’s crushing economic crisis, and by large holdings in Greek bonds that were devalued by 74 percent.
If a deal isn’t reached, Eurozone officials have reportedly said they are willing to let Cyprus default and even be pushed out of the financial bloc despite criticism from some analysts that could undermine its integrity and erase trust in banks and the EU itself. The Greek government, which is preparing to have a Greek bank take over branches of Cypriot banks in its country, has avoided criticizing the Troika s Prime Minister Antonis Samaras gets ready to negotiate with them over demands for more austerity measures that he generally supports.
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