Sunday

22nd May 2022

Cyprus becomes first ever euro-country to impose cash controls

  • Medieval map of Nicosia. Brzeski: 'very likely controls will remain in place for at least a month' (Photo: Wikipedia)

Cyprus will become the first ever eurozone country to impose capital controls when its stricken banks open for business at noon local time Thursday (28 March).

Payments out of the country and cheque cashing will be suspended as part of emergency controls unveiled on Wednesday night by the Cypriot government.

Read and decide

Join EUobserver today

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

For its part, the European Central Bank flew in extra supplies of bank notes to cope with an expected upsurge in withdrawals.

The temporary controls, which will see Cyprus operate a siege economy, are part of a desperate bid by the Cypriot government to avoid possible runs on its banks which have stayed closed for more than a week.

Finance minister Michalis Sarris said that Cypriot banks have already suffered from "substantial outflows" in recent weeks as nervous investors rushed to get money out.

Cypriots leaving the country will be allowed to take no more than €3,000 with them on each trip. There will also be a €10,000 cap on payments for tuition fees in foreign universities, alongside a €5,000 monthly limit on using credit and debit cards abroad.

All payments for imports of goods will be subject to approval by the government. Cypriots will also be required to declare all monies received for the sale of exports or property overseas.

The government also announced that the maximum daily withdrawal from ATM's would be increased to €300.

Cypriots have in recent days been unable to withdraw more than €100 per day from Laiki bank and €120 from the Bank of Cyprus, the country's two biggest lenders.

While Cyprus is by no means the first country in European history to impose capital controls, it is unusual to impose restrictions when you do not have your own currency.

The Cypriot government says that the controls will only be in place for seven days. But many analysts are sceptical, with many expecting the curbs to stay in place for months or even years.

Some point to the experience of Iceland, which imposed temporary capital controls in November 2008 after the collapse of its banking sector.

More than four years on, the controls are still in place and foreign investment into Iceland, which had helped drive the country's rapid economic growth in the decade leading up to the crash, is still 25 percent lower than in 2007.

Speaking to EUobserver on Wednesday, Carsten Brzeski, a senior economist at ING bank in Belgium, said that it is "very likely that the controls remain in place for at least a month, probably even longer."

There are also fears that the controls could plunge Cyprus deeper into recession.

According to the European Commission's latest economic forecast, published in February, the Cypriot economy is projected to stay in recession in 2013 and 2014, with a 3.5 percent contraction this year.

Its debt to GDP ratio is expected to touch 93 percent in 2013 and 97 percent in 2014. But keeping the capital controls in place for any significant length of time is likely to lead to a sharp decline in exports and foreign investments, making the numbers even worse.

"Since the economy is almost exclusively driven by financial services, the contraction should be much stronger. A contraction of 5-7 percent could be possible, obviously undermining debt sustainability and eventually requiring another bailout package or another discussion on possible debt restructuring," Brzeski added.

Meanwhile, the Cypriot parliament is yet to give its approval on the revised €10 billion bailout agreed by eurozone finance ministers in Brussels on Monday, creating more uncertainty.

Eurozone agrees Cyprus bailout 2.0

Cyprus' Laiki bank is to be wiped out. Depositors in Bank of Cyprus will also take a hit under a new bailout deal. But details remain sketchy.

Cyprus MPs pass bank laws, start bailout talks

Cyprus edged back from the brink of bankruptcy on Friday after MPs agreed to a series of emergency reforms - including capital controls - in a bid to avoid financial meltdown.

Draghi: Cyprus levy was 'not smart'

ECB chief Draghi has admitted that an initial plan to tax small savers in Cyprus was "not smart" and called for eurozone rules on failing banks to enter into force more quickly.

Cypriot banks re-open without panic

Cyprus' banks opened without panic on Thursday after a 10 day lockout as the government struggled to agree a €10 billion rescue package.

Commission grilled on RePowerEU €210bn pricetag

EU leaders unveiled a €210bn strategy aiming to cut Russian gas out of the European energy equation before 2027 and by two-thirds before the end of the year — but questions remain on how it is to be financed.

News in Brief

  1. UK to send 'hundreds' of migrants to Rwanda each year
  2. Norwegian knife attacks were domestic dispute
  3. Sweden hits back at Turkey's 'disinformation' in Nato bid
  4. Germany's Schröder gives up one of two Russia jobs
  5. G7 countries pledge €18bn in financial aid for Ukraine
  6. Italian unions strike in protest over military aid for Ukraine
  7. Russia cuts gas supply to Finland
  8. Half of Gazprom's clients have opened rouble accounts

Stakeholders' Highlights

  1. Nordic Council of MinistersNordic delegation visits Nordic Bridges in Canada
  2. Nordic Council of MinistersClear to proceed - green shipping corridors in the Nordic Region
  3. Nordic Council of MinistersNordic ministers agree on international climate commitments
  4. UNESDA - SOFT DRINKS EUROPEEfficient waste collection schemes, closed-loop recycling and access to recycled content are crucial to transition to a circular economy in Europe
  5. UiPathNo digital future for the EU without Intelligent Automation? Online briefing Link

Latest News

  1. What Europe still needs to do to save its bees
  2. Remembering Falcone: How Italy almost became a narco-state
  3. Economic worries and Hungary on the spot Next WEEK
  4. MEPs urge sanctioning the likes of ex-chancellor Schröder
  5. MEPs call for a more forceful EU response to Kremlin gas cut
  6. Catalan leader slams Pegasus use: 'Perhaps I'm still spied on'
  7. More EU teams needed to prosecute Ukraine war crimes
  8. French EU presidency struggling on asylum reforms

Join EUobserver

Support quality EU news

Join us