Cypriots expressed fury and frustration – but confounded predictions of chaos and even violence – as they formed orderly lines on Thursday to enter the country’s banks, which reopened after being closed for nearly two weeks by a financial crisis that has shaken the foundations of the European Union and its common currency.
There had been fears that branches would be besieged by angry customers in the wake of a €10 billion ($13 billion) bailout deal agreed to with Brussels in which one Cypriot bank will fold, another will be restructured, and depositors will be hit with heavy losses.
The banks reopened only after the Cypriot government rushed through draconian capital control measures on Wednesday night, limiting cash withdrawals to just €300 ($384) per person per day and imposing harsh restrictions on credit payments and the transfer of money abroad.
Overseas credit payments are limited to €5,000 ($6,400), no checks can be cashed, and Cypriots traveling abroad can take only €1,000 ($1,300) with them.
The introduction of the restrictions was unprecedented in the 14-year history of the euro, with analysts saying that it was the sort of thing that usually happened in Africa or Latin America, rather than Europe.
Police were put on standby and 180 private security guards were assigned to bank branches around the country.
In the end, however, there was no unrest, with small lines of customers gathering outside banks and seeking shade from the intense spring sunshine in the shade of awnings and trees.
Anger at Europe
In a statement, Cypriot President Nicos Anastasiades thanked people for their forbearance, expressing his “warm gratitude and deep appreciation towards the Cypriot people for the maturity and spirit of responsibility they have shown at a critical time for the stability of the Cypriot economy.”
But while Cypriots appeared outwardly restrained, deep down they were seething about the failure of the banks, the loss of hard-earned savings, and the grim future facing the Mediterranean country of 850,000 people.
Many people were furious with the harsh terms of the bailout laid out in Brussels earlier this week and felt that it had been driven by Germany’s determination to impose its own brand of fiscal austerity on the economically weaker nations of southern Europe.
Particular resentment was directed toward Angela Merkel, the German chancellor.
“Merkel says every single Cypriot is guilty of dirty banking. That is shameful,” says Cleri Machlouzarides, a chartered architect, angrily gesticulating outside a bank in a small square in Nicosia, the capital of the divided island.
“We are small in size, it’s true, but Germany should go and find someone their own size to pick on instead of trying to strangle us. Europeans should know it’s not going to stop here," she says. “Everyone is vulnerable in this banking crisis.”
The capital control measures were drawn up in order to prevent a run on the banks, after a tumultuous two weeks in which Cypriots learned they would lose billions of euros from their accounts in the accord drawn up in Brussels with European policy chiefs.
The two worst-hit lenders are Laiki Bank, which is to be dissolved, and Bank of Cyprus, which will have to absorb Laiki’s assets. Laiki depositors face losses of up to 80 percent on accounts above €100,000, while Bank of Cyprus savers have been warned they may lose 40 percent of their savings above the €100,000 mark.
The closure of the banks for 10 days has caused huge problems for Cypriot businesses, which have been unable to pay their staff and creditors.
“I have so many customers overseas waiting for payment,” says Miltos, a businessman who runs a telecom company and asked that his full name not be used. “It’s a really big problem. They see the news from Cyprus and they think they might not get their money. My fear is that they will drop me and take on a different company. I built the business up over six or seven years but it now it could be destroyed and I would have to start again from scratch.”
The banks were closed on March 16 as the government tried to stitch together a plan to raise €5.8 billion from a “haircut” of depositors’ accounts, in order to qualify for the €10 billion bailout.
The closure paralyzed business activity and brought the country’s system of credit to a crashing halt.
Lining up outside the Bank of Cyprus, Petros Stylianides, an insurance broker with a small company employing three people, says: “I have to make a deposit so that I can make payments to my creditors. I hope the bank will be safe. But then we thought everything was safe. It never crossed our minds that something like this would happen."
“People are cutting salaries; they are laying off a third of their staff. We are going to get into a downward spiral,” he says, adding that he is now thinking of taking his daughter out of private education and putting her in the state education system to save money.
A misleading calm?
Cypriots face great uncertainty. The government has said the credit controls will only remain in place for a week, but many people suspect they could last for months, even years.
While it appears there will be significant job losses at Laiki Bank, it is not clear what the impact will be on Bank of Cyprus.
“I have three or four friends working for the Bank of Cyprus and even they don’t know what will happen. They don’t know if they will lose their jobs,” says Koola Sophocleous, who runs a corner shop selling candy, soda, and newspapers.
Open Europe, a think tank based in London and Brussels, said the level of calm could be misleading. Cypriots did not besiege the banks to try to withdraw their life savings, it notes, because they knew that the capital controls prevented it.
“There are limits on what people can withdraw and/or transfer electronically. People may not be too bothered about waiting at banks if they are subject to strict limits,” the think tank said in an online analysis. “In this day and age, much banking is done electronically so the number of people at the actual bank branches may not reveal the true level of transactions taking place behind the scenes.”
It could be a very different story once the capital controls are lifted, with the prospect of tens of thousands of Cypriots racing to get their money into safer banks abroad.
As Cypriots tried to come to terms with a deeply uncertain future, their leaders came up with a show of solidarity.
President Anastasiades announced that he had cut his salary by a quarter, while his cabinet ministers reduced their stipends by 20 percent.