Some experts claim that the country would be better off if it had exited the Euro and started negotiation about its banks’ future without any promises or commitments.
Most, however, fear that the future seems particularly bleak for Cyprus and the years to come will be harsher than any other Eurozone nation has witnessed before, even Greece, which has undergone three years of big pay cuts, tax hikes and slashed pensions.
In Cyprus though, bank account holders with more than 100,000 euros ($130,000) could lose 80 percent or more of their money as the government is going to confiscate it on the orders of the same international lenders who imposed harsh austerity on Greece.
“Thanks to political mismanagement, we now have a first: capital controls in the Eurozone,” Nicolas Veron, a senior fellow at Bruegel in Brussels and a visiting fellow at the Peterson Institute for International Economics in Washington told the Bloomberg news agencky. “How long is temporary? It could turn out like Iceland, extending to many years.”
Due to the prolonged shutdown of Cypriot banks, competent authorities in Cyprus and Greece getting prepared for possible shortages in basic food sources and medical drugs that are considered irreplaceable. According to a ProtoThema report, the closed banks created conditions of economic suffocation, since Cypriots can now only withdraw cash in dribs and drabs, barely enough to cover their daily needs and businesses have been left without enough money to buy goods, including supermarkets.
Cypriot media reported that some retail businesses are threatened with extinction because consumers have significantly lost much of their spending power, similar to Greece, where more than 68,000 businesses have closed since 2010 when austerity began. The sharp drop in sales has rendered retailer unable to make commission, so that with each passing day more and more shelves are emptied.
Most suppliers do not accept checks and require cash. Gas stations also require cash payment, as well as supermarkets and credit cards are virtually useless and not accepted. A week ago, the President of the Cypriot Supermakets’ Union, Andreas Hatziadamou, had already warned that supermaket stocks are enough for less than a week time. “Unless a solution is immediately found and suppliers do not withdraw their decision of accepting only cash for payments, there will be serious shortages in our supermarkets’ shelves,” he said.
The National Guard is in a dire situation too: just as any other civil servant in Cyprus, they do not know when they will get paid and their families are feeling the consequences. There are currently no other fuel supplies beside the army supplies. All exercises have been cancelled, especially for reservists, who for a number of reasons are not wanted to be armed at the moment, according to a defencenet.gr report.
Employees in private companies will not receive their wages from March, even if the banks open as scheduled on March 28 after being closed since March 15. Employers can not make payments, either because of administrative failures of the banking sector or due to restrictions on withdrawals or the lack of money in their accounts after the haircut on deposits imposed by the Eurogroup.
All bank accounts of more than 100,000 euros in Laiki Bank, which was the commercial bank in Cyprus, will remain in the bank until the final liquidation, and the most optimistic scenario wants beneficiaries to get 20-30% of their deposits back in three or four years.
Before the confiscation, ATM withdrawals were limited to 100 euros ($130) per day. People are facing difficulties with covering their daily needs (food, electricity, telephone, water) making this crisis, economically speaking, as bad as that in 1974 when Turkey invaded and occupied the northern third of the island.
According to a draft presidential decree, as revealed by Kathimerini’s version in Cyprus, a series of strict capital controls will be imposed for at least a week. Bank customers cannot withdraw from savings until their time deposit accounts expire; checks can be deposited but not cash, only 3,000 euros ($3835) per person will be allowed to be taken out of the country, no money can be transferred abroad except for students studying in foreign countries, and that will be limited to 10,000 euros ($13,000) per quarter.
According to ProtoThema daily, officials of the Greek government are expecting for the situation to regain a certain degree of normalcy after the banks reopen to the public. The country is silently preparing for providing Cyprus with any necessary humanitarian help if needed.